Paper industry chain research and recent industry perspectives

Conclusion and investment suggestion: The contradiction between supply and demand has not improved significantly. The short-term industry profit is under pressure, and the profit reduction is expected to be realized. The fundamentals of 12Q2 major companies have improved compared with 12Q1, but the net profit of the interim report will still fall sharply (with a decrease of about 60%). ), it is expected that the whole year will also face a large decline. Although industry valuations are already in the bottom area (several companies have broken net), weak earnings improvement will expose investors based on long-term value to short-term suffering and maintain a “neutral” view since the end of the first quarter. Relatively optimistic about special papers and household papers that are less affected by macroeconomic fluctuations and benefit from low-priced raw materials, such as Hengfeng Paper and Zhongshun Jierou. Bulk industrial paper will still be suffering from dull downstream demand and excess capacity pressure in the near future. If the macro economy has improved expectations, papermaking as a post-cycle variety will follow the emergence of trading-type investment opportunities.

Event: Recently, we participated in the pulp and paper industry conference and conducted grassroots research, and communicated with representatives from all aspects of the paper industry chain. The conclusions are as follows:

Papermaking: Responsibility for the release of capacity and poor demand, coupled with the pressure on traditional off-season paper prices, the profitability of paper companies is unlikely to improve significantly in the short-term after bidding farewell. It is expected that the 12Q2 profit will improve on a month-on-month basis and still face a sharp decline year-on-year. Since the second quarter, the dull demand in the downstream has made the original surplus supply situation worse. The price increase since the Spring Festival has faced a resistance correction since May, and the profit of paper enterprises has entered the climbing stage after bidding farewell to the low point at the beginning of the year. We expect the net profit of the major companies in the papermaking sector to continue to decline sharply in the 12-year period (a reduction of around 60%). In the face of poor profitability, corporate investment impulses are constrained, and they tap their own potentials to simultaneously play the role of “tangible hand”.

Pulp: Short-term demand restricts prices, medium-term broad-leaf pulp supply is more, and coniferous pulp is basically balanced. In the short-term, imported pulp prices are close to the cost of foreign pulp mills, and the risk is significantly lower, but the increase is constrained by the flat demand in the finished paper market. In the medium term, there is a large amount of planned new capacity for hardwood pulp (the profit from pulping will delay some of it), the new capacity of softwood pulp is small and the demand is stable. Domestic production capacity is mainly broad-leaved pulp. Although it has certain scale and equipment advantages, domestic pulp mills do not have cost advantages compared with areas with abundant forest resources such as Brazil. They are turning to products such as dissolving pulp for profit.

Waste paper: supply is limited, the price is relatively optimistic, but subject to the overall situation of fiber raw materials. The consumption of overseas cultural paper has generally declined, and the recycling rate of waste paper has been high and supply is limited. The soundness of the domestic waste paper recycling system needs to be gradually improved, and the increase in recovery rate will inevitably lead to higher recycling costs. On the whole, the supply of waste paper is limited for a long time, and the demand grows with the development of the packaging paper market and the popularization of paper and tissue paper technology for waste paper production. The price is relatively optimistic. The main factor is the overall operation of fiber raw materials.

Risk factors: The profitability of paper enterprises under the double contradiction between supply and demand is under pressure. If the macro economy does not improve significantly, the market earnings are expected to be further lowered.

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