Nine Dragons Paper 2689

Nine Dragons Paper 2689

Postby winston » Tue Jun 17, 2008 12:02 pm

Vested. From UOB-Kay Hian

Key takeaways from small group analyst meeting

Nine Dragons Paper (ND) held a small group analyst meeting yesterday. During the meeting, management addressed most of the investors’ concerns, including the movement of ASPs, margin trend, domestic demand, upward integration and impact of the Sichuan earthquake.

We still believe ND’s underperformance is unjustified, especially when there is no material change in fundamentals and that the growth of the whole paper manufacturing industry in China remains intact. We appreciate management’s efforts to improve its transparency after the stock’s sell-off.

ND’s ASPs were on an uptrend during Feb-May 08. The Group has successfully passed on the full impact of the increase in raw material prices in 3QFY08. The Group’s gross margin improved from 23.6% in 1HFY08 to 24.6% in 3QFY08 and even higher in 4QFY08 due to the ASPs hike.

Management believes there is room for further margin improvement due to better economies of scale. Raw material and waste paper prices, as discussed before, remain stable and soften a little in June. The waste paper prices from Europe peaked out in 4Q07. The 1.1d grade waste paper price
reached 89.3 Euro/tonne, the lowest since mid-Apr 07. ND has increased its sourcing of waste paper locally, which drags down overall waste paper costs. Given the softening of the OCC prices, the Group believes the room for further ASPs hike is limited in the short term.

The installation of the new paper machines (PM) is smooth and the improvement in utilisation rate of the new PMs is on track. The utilisation of the existing PMs remains as high as 92-96%. The utilisation rate of the new PMs is expected to reach over 80% in July and there is limited pressure on overall profitability.

The demand for light weight packaging paper is strong. Despite the capacity expansion, the Group’s finished goods level remains healthy and there is no issue of inventory pilling up. Local sales
reached 65% of total sales in June and management expects local sales as a percentage of total turnover to continue to increase in the coming quarters. According to a report from RISI (released at end-April), the demand for containerboard is still higher than the supply up to 2012 with an expected shortfall of 900,000 tonnes of containerboard in 2012.

The Group has delayed its discussions with overseas players regarding the upward integration given the currency movement. However, we still believe it is likely to announce the developments of upstream projects such as forestry and pulp in the next 9-12 months. The operation in Vietnam is performing well after ND took over in May. Sales of its operation in Vietnam are in terms of US dollar and the movement of the Vietnamese Dong has no impact on its sales. Management believes the demand for containerboard will increase by 10-20% each year. The profitability of the operation in Vietnam is expected to be higher than that in China, given lower operating costs.

The only negative surprise to us is the delay in the installation of the new PMs (22,23 and 27-30) due to the impact of the Sichuan earthquake. According to management, the operation of the PMs 22-23 (in Chongqing) will be delayed by 1.5 months as the Group has to strengthen the buildings and PMs in Chongqing due to the impact of the earthquake. The Group has showed notices from DongFang Electric (1172 HK) regarding the delay in delivery of the power generator to ND due to the distortion of production.

The installation of PMs 27-30 is likely to be delayed by eight months. We share the view that the Group’s growth in FY10 will be affected as PMs 27-30 would be the major growth driver of the Group in FY10. However, the growth will only be delayed and the impact on the Group’s overall growth is minimal. Our target price for ND is under review due to the postponement of installation of new PMs 27-30 but we do not expect to make a major change to it.
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Re: Nine Dragons Paper 2689

Postby winston » Tue Sep 09, 2008 11:08 am

From UOB-Kay Hian:-

Nine Dragons Paper

Difficult operating enviornment ahead with no near-term catalyst

Cut earnings forecasts due to higher-than-expected cost pressure. Despite the correction, the market will continue to de-rate highly leveraged and export-related plays such as Nine Dragons Paper. Downgrade from BUY to HOLD.

Sector Events
RISI announced yesterday that the global recovered paper prices are under pressure given the sluggish demand from China and Southeast Asia. The recovered paper prices have been on the downtrend since early August. Our channel checks suggest that the softening of recovered paper prices is partly due to slow down in manufacturing activities in China. We believe that customers of both Nine Dragons (ND) and Lee & Man Paper will ask for price reductions and their profitability will come under pressure in the near term.

Stock Impact

We believe that ND is losing the pricing power somewhat given softening end demand. ND is likely to share part of the benefit of lower recovered paper to clients to gain market share. Our 2008, 2009 and 2010 net profit forecasts are cut by 13.8%, 17.6% and 12.2% respectively after incorporating:-
a) lower gross margin and
b) higher interest expenses.

We still believe it is a good quality company, which is squeezing the competition and gaining market share despite macroeconomic uncertainties. We do not expect the stock to outperform in the near term given the concerns on tight credit market and there is no near-term catalyst.

Any negative newsflow will trigger a selloff wave on fragile market sentiment. We have cut our fair value to HK$4.47 based on 8x 2009 PE (premium to 6x for Lee & Man Paper.). Re-entry at HK$3.70.

Margin erosion due to price reduction and firm coal prices. The latest PMI data indicates that the growth of manufacturing sector in China is slowing down. Given the weakening end demand, we believe that ND has to share part of the benefit of decline in recovered paper prices to customers in order to gain market share. The message from RISI also confirms our view. The firm coal prices in July and August put pressure on ND’s profitability as the Group is unable to pass on the increase in costs. Management expects coal prices to decline. However, in our view, it takes time for the impact of lower
coal prices to surface.

Earnings revision. We adjusted our gross margin assumptions downward by 1.1ppt, 2.5ppt and 1.5ppt respectively, which caused our 2008, 2009 and 2010 earnings forecasts to change by 13.8%, 17.6% and 12.2% lower respectively.

High gearing is a concern to the market. Given the current environment, the market is now paying more attention to indicators relating financial stability (apart from items in P&L accounts) such as gearing ratio and profile of bank borrowings
in evaluating the listing companies. The current newsflow indicates that the credit market (global and Hong Kong) is expected to be tight for a long period of time.

Shares of the companies in capital intensive industries including ND (1H2007 net gearing: 71.3%) are expected to continue to come under pressure given the concerns on tightening credit market.
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Re: Nine Dragons Paper 2689

Postby winston » Tue Oct 14, 2008 11:11 am

From UOB-Kay Hian:-

Nine Dragons Paper
High gearing ratio remains a concern

Share price plunged due to lower-than-expected FY08 results. The negatives have been priced in somewhat. However, the market will continue to de-rate stocks of highly leveraged companies given the tight credit market.

Corporate Events

Nine Dragons Paper (ND) reported a set of lower-than-expected FY08 results last Friday. Net profit dropped 6.3% yoy to HK$1,876.9m in FY08. Turnover growth of 43.5% was mainly driven by capacity expansion and sales volume growth of 30%
to 4.3m tonnes. However gross margin fall 5.3% yoy to 20.4% in FY08 due to higher raw material costs, especially coal costs. FY08 capex amounted to Rmb10.0b, pushing net gearing ratio to 94%.

Given the high gearing ratio and tight credit market, ND has postponed the operating schedule of 27-30 paper machines (PMs) with a total capacity of 1.6m tonnes from 1QFY10 to after 2010 and cancelled the expansion plans in Vietnam.
Under the current expansion plan, ND’s total capacity will be increased to 8.55m tonnes by end-09, up from 7.75m tonnes in Aug 08. Management will focus on upgrading existing production lines to improve efficiency. Capex will be cut from Rmb3.0b to Rmb2.2b. Management intends to repay a loan of Rmb1.0-1.5b ahead of schedule to lower gearing ratio.

Stock Impact
The lower raw material costs is positive for ND. However, ND is likely to share part of the benefit of lower recovered paper cost with clients to gain market share. Our 2008, 2009 and 2010 net profit forecasts were reduced by 13.8%, 17.6% and 12.2% respectively after incorporating lower gross margin and higher interest expenses.

Earnings Risks
Further margin erosion, increasing finance cost and liquidity risk.

Valuation/Recommendation
Maintain HOLD. The information from the credit market indicates that ND’s bankruptcy risk is still low despite its high net gearing ratio. However, we do not expect ND shares to outperform in the near term given the concerns over the tight
credit market and a lack of near-term catalysts. Any negative newsflow will trigger a sell-off wave on fragile market sentiment. Reduction in bank borrowings is critical for restoring market confidence. We have cut our fair value to HK$2.10 after an earnings cut, based on 8X FY09 PE. Entry price is HK$1.40.

Default risk is not exceptionally high. Nine Dragons Paper’s (ND) net gearing increased further to 94% in 2HFY08, which creates concerns over the Group’s financial stability given the tight credit environment. We tried to quantify the bankruptcy risk through the data from the bond market. The ZSpread, a measure of the credit risk of the bond of ND’s senior notes, jumped from 336.2 bp to 538.6 bp after the FY08 results announcement and rating downgraded by Fitch. However, the Z-Spread of ND’s senior note is not exceptionally high, which is in line with that of global peers including Stora Enso, UPM, Temple Inland and Mead Westvaco. ND’s bankruptcy risk is not as high as what the market expects.

Major Shareholders (%): Cheung Family 69.7

Key raw material prices are easing.
Coal prices have started to ease due to improvements in transport conditions and weakening end-user demand.
Wastepaper prices continue to decline and have reached an 18-month low recently. The lower wastepaper and coal prices are positive for ND. However, the impact of lower raw material prices is likely to emerge in 2HFY09.
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Re: Nine Dragons Paper 2689

Postby winston » Wed Dec 17, 2008 12:44 pm

Not vested.

China's Nine Dragons credit rating cut to 'BB' from 'BBB-' on weak outlook - S&P


BEIJING (XFN-ASIA) - Standard & Poor's Ratings Services said it has lowered its long-term corporate credit rating on Nine Dragons Paper (Holdings) Ltd to "BB" from "BBB-" as it expects the company's financial profile to remain weak over the coming 12 months.

S&P said it has also lowered its issue rating on Nine Dragons' 300 mln usd senior unsecured notes to "BB-" from "BBB-."

Both ratings remain on "CreditWatch" with negative implications, where they were placed on Oct 13, after Nine Dragons posted weak results for fiscal 2008.

S&P said Nine Dragons' financial profile has materially deteriorated due to a significant increase in borrowings and weakened profitability. This is likely to remain the case for the coming 12 months due to the economic downturn, it said.

But it added that Nine Dragons' rating is supported by its good business profile, its competitive cost position, and China's good long-term demand potential for containerboard products.

The company is also likely to benefit from government-encouraged sector consolidation, S&P noted.
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Re: Nine Dragons Paper 2689

Postby winston » Mon Dec 29, 2008 4:54 pm

The board of directors (the “Board”) of Nine Dragons Paper (Holdings) Limited (the “Company”) have noted various press articles including Times Weekly 【時代周報】about the state of affairs of the Company.

The Board would like to state that such articles have no basis in fact. The Company is not involved in any bankruptcy, liquidation or winding-up proceedings and the Board considers that the Company’s financial position is sound and stable and its operation is normal.

This announcement is made by the order of the Board, of which the directors individually and jointly accept responsibility for the accuracy of the information contained in this announcement.

By Order of the Board of
NINE DRAGONS PAPER (HOLDINGS) LIMITED
Cheung Yan
Chairman
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Re: Nine Dragons Paper 2689

Postby winston » Mon Dec 29, 2008 6:21 pm

Nine Dragons Denies Reports of Imminent Bankruptcy (Update2)
By Joshua Fellman

Dec. 29 (Bloomberg) -- Nine Dragons Paper (Holdings) Ltd., China’s biggest maker of containerboard used in packaging, denied media reports that it would declare bankruptcy at year-end, and said its finances are fine.

The Guangzhou, China-based Times Weekly reported on Dec. 25 that an unidentified Web posting dated Nov. 1 cited an unidentified Nine Dragons official as saying that the company would declare bankruptcy because it couldn’t repay a 500 million yuan ($73 million) loan.

“Such articles have no basis in fact,” Nine Dragons said in a Hong Kong stock exchange filing today. “The company is not involved in any bankruptcy, liquidation or winding-up proceedings and the company’s financial situation is sound and stable and its operation is normal.”

Packaging demand in China is falling as the global recession cuts demand for the country’s exports. Nine Dragons’ profit for the six months ended June 30 fell 22 percent to 820.7 million yuan from the same period last year, and its stock has slumped 89 percent in 2008, compared with the benchmark’s 48 percent drop.

Nine Dragons’ stock fell as much as 4.8 percent before the announcement today and closed at HK$2.20, down 3.9 percent. The benchmark Hang Seng Index gained 1 percent.
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Re: Nine Dragons Paper 2689

Postby winston » Tue Dec 30, 2008 7:07 am

Nine Dragons smashes rumors of collapse
Sanchez Wang


Nine Dragons Paper (2689) denied recent media reports of its imminent demise by disclosing large sums of prepayments for its short-term loans.

The mainland containerboard producer said that it had prepaid US$100 million (HK$780 million) of a US$350 million loan, and HK$720 million for another HK$2.3 billion loan facility, thus clearing payments due within 2009 for these two loans. The firm also said it managed to amend terms for the remaining payments with the lenders of the two loans.

"The company is not involved in any bankruptcy, liquidation, or winding-up proceedings ... [the firm's] financial position is sound and stable, and its operation is normal," Nine Dragons chairwoman Cheung Yan said in a earlier clarification announcement.

Guangzhou-based newspaper Times Weekly reported last Friday that Dongguan-based Nine Dragons, the mainland's biggest containerboard producer, was on the verge of bankruptcy due to heavy debt, high inventory and slumping sales, amid overexpansion in the past two years.

Nine Dragons shares closed yesterday at HK$2.20, down 3.93 percent.
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Re: Nine Dragons Paper 2689

Postby winston » Mon Jan 05, 2009 11:46 am

BROKER CALL China's Nine Dragons kept 'sell' on earnings worries - Citigroup

BEIJING (XFN-ASIA) - Citigroup said it is reaffirming a "sell" call on Nine Dragons Paper (Holdings) Ltd due to concerns over shrinking profitability at the Hong Kong-listed Chinese firm. It said it is concerned about downward pressure in average selling prices amid sluggish export activities and weakening domestic consumption.

"We forecast 2009 containerboard profit will deteriorate to 250 yuan/ton. We worry first half profit will plunge by over 45 pct," Citigroup said. The target price is 1.60 hkd. Nine Dragons shares were up 2.15 pct at 2.38 hkd in Hong Kong amid gains in the broader market.
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Re: Nine Dragons Paper 2689

Postby winston » Wed Jan 07, 2009 4:10 pm

DJ MARKET TALK:Still Concerned On Nine Dragons Debt Profile-Daiwa

1446 [Dow Jones] STOCK CALL: Daiwa tips Nine Dragons Paper (2689.HK) 1HFY09 results (July-December) to be weak, due to sudden sharp fall in containerboard average selling prices since October 2008. Adds 2H (January-June) should improve, but ASPs likely to remain weak, along with raw-material prices.

Notes company voluntarily prepaid about HK$1.5 billion of two syndicated loans, repurchased 5.4% of issued senior notes. "We remain concerned about the company's high net-debt profile, even with the loan repayments," says Daiwa.

Cuts FY09-FY11 earnings forecast by 7%-32% after lowering demand assumptions, but raises target to HK$1.75 vs HK$1.20 due to improvement in market sentiment recently. Keeps at Underperform. Stock +2.6% at HK$2.75.(SUT)
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Re: Nine Dragons Paper 2689

Postby winston » Thu Jan 15, 2009 7:56 am

Nine Dragons Paper (2689) said it will post a substantial reduction in profit for the six months ended December 31 on higher raw material costs and lower product selling prices
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