UBS: Maintains "Buy" rating on ND PAPER (02689), target price HK$11.82, continues to expand pulp production capacity and resumes dividend payments.

UBS released a research report maintaining a "Buy" rating on ND PAPER (02689) with a target price of HK$11.82. The company's net profit for the fiscal year 2026 ended June rose 103% year-on-year to RMB 3.58 billion, close to the upper end of the company's profit guidance; paper sales volume increased 14% year-on-year to 24.5 million tonnes, slightly above the bank's expectation of 24.4 million tonnes; gross margin expanded 3.1 percentage points year-on-year to 14.6%, above the bank's expectation of 14.1%. Profit growth was driven by average selling price increases outpacing rises in fiber and energy costs, reversing the industry-wide margin pressure. Management guided for flat paper sales volume in fiscal year 2027, with pulp production increasing by 1 million tonnes year-on-year to 5.8 million tonnes. The bank noted that the company plans to add a net 1.32 million tonnes of paper capacity by the end of 2027, including a 700,000-tonne high-end containerboard replacement project in Beihai and 620,000 tonnes of new capacity in Dongguan; on the pulp side, it remains on track to add 2.5 million tonnes by the end of 2027, and has approved an additional 600,000-tonne pulp line in Taicang, expected to commence production in the second quarter of 2028. As pulp self-sufficiency rises, Chairman Zhang Yin stated that the company may enter the tissue paper business, with an initial target capacity of 200,000 to 300,000 tonnes, and management believes tissue paper margins are approximately RMB 400 to 500 per tonne. The bank also noted that Zhang Yin disclosed that South American forestry assets were acquired in her personal name several years ago as part of a long-term strategy to build a full industry chain platform spanning forestry, pulp, and papermaking; they were not injected into the company due to high leverage during the company's previous capital expenditure cycle, and management stated that as the debt ratio declines, a future injection remains possible. The company resumed dividend payments, with a dividend per share of RMB 0.1 for fiscal year 2026, representing a payout ratio of 13%, and targets resuming regular dividend payments from fiscal year 2027 ending June next year, with a payout ratio above 20%. The debt ratio for fiscal year 2026 was 67.6%, and management targets reducing it to 50% in fiscal year 2027 and to 30% over the long term.