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Paper industry: investment strategy report for the fourth quarter of 2005

key points of investment:

in the third quarter of 2005, the demand for most kinds of paper in China's paper industry remained unchanged, but the prices of paper and coated paper have been loosened, the operating rates of carton paper and paperboard are still insufficient, and the prices are still hovering at the low end

the price of international wood pulp is still declining on the whole. The price of broad-leaved pulp, which has been strong in the early stage, began to decline in the third quarter, while the price of coniferous pulp has hit the bottom and rebounded. The price of waste paper has not changed much and remains at the low level since this year. We expect that with the production of new paper production capacity and the recovery of white paperboard operating rate, the price of waste paper will gradually rise

in the short term, the rise of the RMB exchange rate did not bring benefits to paper enterprises: shortly after the appreciation of the RMB, the export quotation of coniferous pulp to China rose by $10 (about 2%), while the domestic wood pulp price basically remained unchanged

multinational giants in the paper industry have focused their further development strategies on China, and gradually strengthened their investment in domestic high-grade paper and raw material forests

with the gradual deepening of the split share structure reform, the value of shell resources of some listed companies in the industry has been improved, which has brought greater opportunities for mergers and acquisitions in the industry. Leading enterprises have further consolidated their advantageous position through low-cost restructuring

under the background of the peak of the industry boom, it is suggested to pay attention to listed companies with strong cost control ability and possible share reform consideration, as well as strong merger and reorganization ability

stock selection strategy

Huatai and Chenming have relatively weak ability to pay consideration due to the low proportion of non tradable shares. Chenming paper also has a considerable proportion of B shares, and the scheme may be relatively complex

Yueyang Paper and Hengfeng Paper have strong ability to pay consideration; Bohui paper has announced the consideration plan

in the long run, enterprises with high management level, strong cost control ability and resource advantages will become the final winners

enterprises with advantages in water resources, high-quality fiber resources and energy costs will have natural advantages in the future competition

enterprises with high management level and strong cost control ability will compete for greater market share in competition and integration

the share reform brings opportunities for the reorganization and merger of inferior paper-making enterprises

due to the full circulation made possible by the share reform, the shell value of inferior paper-making listed companies has been improved. The fixed assets of paper-making enterprises have a long service life, and the shelf life of inventories (finished products, wood pulp) is also relatively long, which is relatively easy to deal with

enterprises and units in other industries are Joule (J) industry. After buying a shell, they can obtain full circulation qualification by injecting new assets, disposing of the original paper assets and paying the consideration. Under this background, the profit model of the merger is relatively clear and the profit space is relatively large

advantageous enterprises such as Chenming paper can achieve low-cost expansion by purchasing and merging papermaking and pulping assets at a low price

brief analysis of key companies in the industry

Chenming Paper - buy the largest paper-making enterprise in China with the best benefits and the richest product line

we believe that under the environment of the transformation of economic growth mode from extensive mode at the cost of high energy consumption and high pollution to sustainable circular economic growth mode, the process of industrial integration and survival of the fittest in the domestic paper industry is bound to accelerate. As an advantageous enterprise with the strongest comprehensive strength, negotiation ability and integration ability, Chenming paper is most likely to become the final winner of industrial integration. Recently, Jilin paper achieved another low-cost expansion by purchasing fixed assets

the 350000 ton coated white paperboard project and the 200000 ton light coated paper project of the company have been successfully put into production in the first quarter, and are expected to produce benefits in the second quarter; Since 2005, the proportion of the company's self-made pulp has increased significantly, and its ability to resist risks in response to international pulp price fluctuations has been significantly strengthened. We expect the comprehensive gross profit margin of products to rise this year

we predict that the company's main business income will be 10276 million yuan in 2005. Due to the tax rebate of 90 million yuan for domestic equipment in that year, the EPS of the company in 2005 is expected to be 0.515 yuan; 06eps is 0.790 yuan

Huatai shares - bought the leading paper industry, and the subsequent growth is expected. In 2006, the company is the largest paper leading enterprise in China, with an annual production capacity of 360000 tons of high-end paper. Compared with similar companies, the company has advanced equipment, strict management, flexible mechanism and good cost control. The cost of paper per ton is about 3000 yuan, which is close to the level of foreign peers. It is the most competitive enterprise in the paper industry

we believe that due to the tight supply of paper, the price of paper will remain stable at 5400-5500 yuan/ton in the first half of 2005, and will fall to yuan/ton in the second half of 2005

the company's 1.5 billion yuan convertible bonds have not been approved. As the project to be invested with raised funds is being implemented, the financial expenses this year will increase additionally

the 200000 ton SC paper project jointly invested by the company and straenso is expected to be officially signed in the near future and put into production as soon as 2006; The forestry pulp paper integration project of the company has been approved by the relevant national departments, but we believe that the company is currently short of funds and is not expected to implement it on a large scale before 2006

we expect the EPS of the company to be 1.061 yuan in 2005 and 1.435 yuan in 2006

Yueyang Paper Industry - buy paper capacity expansion, and initially take shape the prototype of Forest Pulp paper integration

after the company acquired the group's 120000 ton project, the actual paper capacity reached 270000 tons, ranking third in the paper industry after Huatai Co., Ltd. and Fujian South paper

the company is located in Dongting Lake area, with rich water resources and close to the origin of raw materials. The purchase cost of papermaking raw materials is low and stable. The company uses self-made mechanical ground wood pulp, chemical mechanical pulp and waste paper deinked pulp as the main raw materials. The cost of paper per ton is about 3100 yuan, which is lower than that of competitors in Northeast China and Fujian

the location of the company is one of the most suitable areas for developing fast-growing forests in China. The company is actively developing forestry. At present, 600000 mu of fast-growing forest has been built, and will initially have the prototype of a forest pulp paper integration enterprise within five years

the group is rich in local resources in Hunan, and its many high-quality assets, especially 3million mu of forest land and reed fields, are of great value

we expect the company's EPS to be 0.380 yuan in 2005 and 0.441 yuan in 2006

Bohui paper industry - competition for holding white paperboard intensifies

the 200000 ton coated white paperboard project was put into operation in October 2004, with an actual production capacity of 300000 tons. It is estimated that 250000 tons of coated white paperboard can be sold in 2005

as the coated white paperboard/coated white paperboard projects of Ningbo Zhonghua and Chenming paper industries have been put into operation successively, the competition in the industry has intensified, and the enterprise's profits may decline

the company has built a 100000 ton chemical mechanical pulp production line and is under construction. The cost of self-made pulp is about 3000 yuan/ton, which is lower than the price of imported wood pulp

we predict that the EPS of the company will be 0.525 yuan in 2005 and 0.558 yuan in 2006

source: CICC

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