UBS: Raises target price for ND PAPER (02689) to HKD 11.82, maintains "Buy" rating.

UBS released a research report stating that ND PAPER (02689) saw its stock price drop yesterday following a positive earnings announcement. After communicating with investors, the firm found that some domestic investors initially expected profits to exceed guidance by about 10%, leading them to view the results as disappointing, despite the reported earnings being generally in line with market expectations. ND PAPER's current price corresponds to a forecasted price-to-earnings ratio of 5.3 times and a price-to-book ratio of 0.5 times for the fiscal year ending June 30, 2027. UBS maintained its "Buy" rating and raised its forecast for 2027 net profit by 9% to 5 billion yuan to reflect solid prospects and the factors related to the redemption of perpetual securities. The target price was increased by 9%, from HKD 10.8 to HKD 11.82. UBS stated that ND PAPER's earnings announcement is expected to show that for the fiscal year ending June 30, 2026, net profits will range between 3.4 billion and 3.6 billion yuan, representing a year-on-year growth of 92% to 104%, with a median of 3.5 billion yuan, which is roughly in line with UBS and market expectations. Notably, ND PAPER's net profit has doubled from 751 million yuan in the 2024 fiscal year to 1.767 billion yuan in the 2025 fiscal year, and is expected to achieve another doubling in the fiscal year 2026 amid a backdrop of declining industry profitability. Management attributed the strong profit growth to increased sales and the widening gap between price increases and inflation in raw material costs. UBS observed that ND PAPER's sales and profit margins are continually improving. Supported by robust paper demand, the firm estimates that ND PAPER's paper sales will increase by 13% year-on-year to 24.4 million tons in the fiscal year 2026. Although the industrys weighted average profitability has declined year-on-year by around 150 yuan per ton, the firm estimates that ND PAPER's gross profit per ton has expanded by about 90 yuan, driving the gross margin up by 3 percentage points year-on-year to 14%. The firm believes that ND PAPERs vertically integrated pulp and paper platform has driven the expansion of gross margins by reducing costs and enhancing pricing power. Additionally, the company redeemed $400 million of perpetual securities with an annual interest rate of 14% in August, anticipating annual savings of about 400 million yuan starting from the fiscal year 2027.