Nine Dragons Paper (2689.HK): Market leader position with great pricing power to effectively shifting the rising waste paper cost August 28, 2018 308

Investment Summary

  • Regarding to the recent trade disputes between USA and China, we expect that China will intend to increase its support for domestic demand, in order to further boost its contribution to the overall economic growth and thus reduce its reliance on foreign trade. Packaging paper industry is highly related to fast moving consumer goods industry. We expect the growing trend of domestic consumer market will help to continue expand the demand for packaging paper products. Besides, fast-growing online shopping is also an
    important driving factor for the industry.
  • In an effort to tighten control over solid waste imports, new regulations on the import of waste paper to China have been announced. In order to purchase cheaper import waste paper, companies need to obtain quotas granted by Ministry of Environmental Protection (MEP). Taking into account the lagging factors in the reaction cost of finished paper products, and the fact that large companies such as Nine Dragons can obtain lower-cost imported waste paper, we expect that the new policy will help accelerate industry consolidation and eliminate more small and medium-sized enterprises. Leading companies will have greater pricing power, which can help them to effectively shifting the cost of waste paper. Their profit margins are expected to be able to expand further.

About the author

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Tracy Ku
Investment Analyst

Graduated from Chinese University of Hong Kong, majoring in Economics for Bachelor Degree, and Journalism for Master Degree. Worked in financial news industry for more than four years.
Currently cover retailing, property sectors and IPOs. Good at analysis for the companies with economic policies and industry prospects.

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