HSBC Global Research initiated coverage on Nine Dragons Paper (NDP)(02689) with a "buy" rating and a target price of HK$10.6.
The research house believes NDP will be a key beneficiary as marginal players are being
squeezed out of the business due to the rising cost of domestic raw materials.
HSBC expects to see both gross profit per ton (GP/t) and earnings start growing again in FY2020. It believes that NDP can leverage its 0.7mt of overseas recycled pulp capacity (0.48mt in Malaysia and 0.22mt in the US), lowering its reliance on expensive domestic wastepaper.
HSBC expects domestic wastepaper prices to rise further in 2020 as import volumes continue to shrink. As a result, NDP's cost advantage other its rivals should become more and more significant. It forecast an earnings CAGR of 15% from FY2019 to FY2022.
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