CHINACONTAINERBOARD：TURNINGCAUTIOUSLYOPTIMISTICINTO1128

1、hold buy buy hold deutsche bank markets research asia china mid top pick nine dragons paper in conclusion, we are long-term positive on the china containerboard industry with an expectation of a gradual and incremental industrial recovery over the next 23 years. however, we err on the side of cautio

2、n amid the optimism, bearing in mind the headwinds ahead from both global macro concerns and industry structural overcapacity issues. our top pick in the industry is nine dragons paper (2689.hk), given its capacity readiness for a strong industry rebound and undemanding valuation. we maintain a hold

3、 on lee buy target price hk$7.1 per share . 4 lee and man paper (2314.hk); hold target price hk$4.8 per share . 4 turning cautiously optimistic: survivors will win all.5 asia remains growth engine despite a stagnant 2012 . 5 industry at trough with overcapacity and hampered demand . 6 demand demogra

4、phic shift lends long-term confidence . 8 industry performance outlook: turning cautiously positive . 9 bite the bullet and survivors will win all. 15 nine dragons paper .18 lee top pick nine dragons paper in conclusion, we are long-term positive on the china containerboard industry with an expectat

5、ion of a gradual and incremental industrial recovery over the next 23 years. however, we err on the side of caution amid the optimism, bearing in mind the roadblocks ahead from both global macro concerns and industry structural issues. our top pick in the industry is nine dragons paper (2689.hk), gi

6、ven its capacity readiness for a strong industry rebound and undemanding valuation. we maintain our hold on deutsche bank ag/hong kongpage 3 27 november 2012 mid buy target price hk$7.1 per share figure 1: ndp key operating matrix fy06fy07fy08fy09fy10fy11fy12fy13efy14efy15e asp (rmb/ton) volume (mt

7、m) capex (rmb bn) net profit/ton (rmb) 2,863 2,760 1.3 477 3,009 3,269 5.5 556 3,313 4,260 9.9 370 2,492 5,268 3.9 193 2,791 6,430 4.2 328 3,061 7,967 8.3 224 2,981 9,114 5.1 117 2,866 10,794 3.5 135 2,922 12,078 2.0 182 2,882 13,076 0.8 218 source: deutsche bank estimates, company data figure 2: nd

8、p valuation cy2010cy2011cy2012ecy2013ecy2014cy2015 p/e (x) ev/ebitda (x) dividend yield p/bv (x) roe 20.8 14.7 1.0% 2.5 10.6% 13.1 9.7 1.7% 1.1 7.0% 17.4 9.5 1.2% 1.2 5.9% 12.1 7.9 1.6% 1.1 8.0% 8.7 6.4 2.2% 1.0 10.2% 6.6 5.1 2.9% 0.9 12.2% source: deutsche bank estimates, company data lee and man p

9、aper (2314.hk); hold target price hk$4.8 per share figure 3: lmp key operating matrix fy06fy07fy08fy09fy10fy11fy12fy13efy14efy15e asp (hk$/ton) volume (mt m) capex (hk$ bn) net profit/ton (hk$) 2,744 1,235 1.2 475 2,829 1,672 2.7 570 3,177 2,645 4.2 527 3,098 2,996 1.6 100 2,980 3,579 0.5 512 3,812

10、3,500 1.8 528 3,930 3,648 2.9 370 3,576 4,296 1.4 363 3,619 4,940 1.2 404 3,692 5,440 0.9 482 source: deutsche bank estimates, company data figure 4: lmp valuation cy2010cy2011cy2012ecy2013ecy2014ecy2015e p/e (x) ev/ebitda (x) dividend yield p/bv roe 14.2 11.9 2.4% 2.2 17.2% 7.8 8.5 4.4% 0.9 11.9% 1

11、3.9 11.8 2.3% 1.4 10.9% 11.4 9.9 2.7% 1.3 12.2% 9.0 8.1 3.4% 1.2 14.1% 7.1 6.4 4.3% 1.1 16.0% source: deutsche bank estimates, company data page 4deutsche bank ag/hong kong 139 154 27 november 2012 mid deutsche bank estimates. figure 17: us and euro land cpi china cpi estimates, yoy% us core cpi yoy

12、%us estimateseuroland hicp yoy%euroland estimates 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% source: us bureau of labor statistics, statistical office of the european communities/haver analytics; deutsche bank estimates. deutsche bank ag/hong kongpage 11 27 november 2012 mid deutsche bank. costs: depressed bu

13、t still with relative power against finished goods similarly, the prices of occ (old corrugated containers), the key raw material for china containerboard manufacturing, have also witnessed a steep fall since mid-2011, owing to demand constraints resulting from the global economic slowdown. however,

14、 the pricing of us/eu occ, which comprises 3/4 of total occ supply in china, hit its trough and has started picking up since august 2012; we believe this is more a result of tightened supply than stronger demand from downstream, owing to sharply reduced recoverable waste paper feedstock in the us an

15、d eu region due to slumping retail sales. accordingly, the domestic occ price also deep-dived, due to insufficient demand from major containerboard producers. page 12deutsche bank ag/hong kong 27 november 2012 mid deutsche bank. however, based on our channel checks, into october and november, the us

16、 occ prices moved up to us$225-230 per ton, given the supply shortage due to the aftermath of hurricane sandy in the east cost amidst stocking for upcoming christmas/new year orders, whose volume, on the contrary, is thinner and later than in previous years. euroland and domestic occ have seen some

17、support due to tight supply as well. occ and pulp account for 65% of total raw material costs of containerboard products and 50% as a percentage of sales revenue, followed by energy and water consumption (10%15% of revenue) as the biggest cost items. occ consists of post- consumed boxes which are co

18、llected from households and supermarkets, pre- consumer boxes, off-cuts from converting plants and imported boxes made out of kraftliner. major containerboard producers in china nowadays source 1/4 of their total occ requirement domestically while the rest is imported from the us, europe and japan.

19、cash margin spread stabilizing after severe squeeze the china containerboard industry has been a lucrative industry, given the top-line volume growth and a cash margin level of 60%-80% and 20% gross margin level until late 2009, with the exception of a short blip during the 2008 financial crisis per

20、iod. on the back of a reasonable gross margin, ranging between 20%-25%, and an attractive net margin range of mid-high teens, major players started aggressive expansion in their capacities, while many new small mills entered the industry with sub- optimal operation, yet nonetheless additional ineffi

21、cient capacities. during late 2008 and early 2009, containerboard asps witnessed a sharp decline, owing to the sudden outbreak of the financial crisis and a severe liquidity squeeze. thanks to the almost parallel shift in costs/asp, cash margin spread was less squeezed but with truncated sales volum

22、e, which led to operating deleverage. during that period, a capex funding breakdown and insolvency concerns overshadowed the industry. deutsche bank ag/hong kongpage 13 jan-11 may-11 jan-12 may-12 jun-11 jul-11 jun-12 mar-11 dec-11 mar-12 aug-11oct-11 jul-12 aug-12apr-11nov-11feb-11sep-11feb-12apr-1

23、2sep-12oct-12 2,500 27 november 2012 mid deutsche bank the more sticky cash margin contraction started much later, from 2010 to 2012, with the new capacities commencing production, which led to an intense supply shock in the industry. thus gross margins for key players dropped to the mid-high teen l

24、evel on average during the period with the industry cash margin contracting to 51% in march 2012 versus 54% on average in 2011 and the 60%80% level in the years prior to 2010. figure 21: the chinese containerboard market cash spread (2011-2012) rmb/ton average containerboard priceocc - from us 4000

25、3500 3000 2500 cash margin spread 2000 1500 1000 500 0 *cash margin denotes mathematical difference between finished containerboard products asp vs. occ price. source: c; deutsche bank however, the price has shown early signs of stabilization from mid-2012 onwards. margins have witnessed a contracti

26、on, however, given the faster rise in occ prices since september 2012. with the expectation of gradually-improving prices for finished goods from trough levels, and support from stabilizing occ prices, we project containerboard cash margins to improve slowly over the next 6-12 months. page 14deutsch

27、e bank ag/hong kong 27 november 2012 mid the chart shows combined margins and cagrs for ndp and lmp, the largest containerboard manufacturers in china with a collective market share of 14%. source: company data; deutsche bank estimates. bite the bullet and survivors will win all the chinese containe

28、rboard industry hit a trough in 2012 with asps and occ prices bottoming out. however, since cy3q12, asps have shown signs of stabilization while occ prices have shown a slow improvement, which we mainly attribute to the positive seasonality factor towards year-end. despite ongoing uncertainty, we be

29、lieve the worst is already behind us. however, a sustainable and smooth industry fundamental recovery remains a challenge and should take longer than the previous cyclicality-driven rebound, given the lackluster macro conditions (most likely without large-scale fiscal stimulus) and prevailing indust

30、ry-wide overcapacity. there would be no exception for major listed china containerboard makers, nine dragons paper and lee recovery to take time likely survives the worst, but recovery to take time after a tough year for the chinese containerboard industry, we believe the worst of the worst is over

31、for nine dragons paper (ndp). looking forward, we see opportunities for ndp, given: 1) capacity readiness, in anticipation of an industry rebound; 2) a falling gearing ratio and abating financing costs; and 3) the benefit of its clear leadership (2x the capacity of the runner-up) in a market in the

32、process hang seng index vivian hao research analyst (+852) 2203 6241 key changes 21,862 of industry rationalization and consolidation. maintaining buy; ndp is our top pick in the sector. expect stabilizing asps and volume growth robust ndp suffered from more slender cash margins into cy3q12, due to

33、continued weakness in the old corrugated container (occ) price. yet, we expect to see price target sales (fye) o prof margin (fye) net profit (fye) 5.60 to 7.10 32,791 to 30,938 11.7 to 10.8 2,016.7 to 1,461.4 26.8% -5.7% -7.2% -27.5% some pricing strength, volume pick-up and margin stabilization in

34、to cy4q12, which is the seasonal peak quarter. in addition, given ndp largely completed its massive capacity expansion in fy12, we expect the company to see robust volume growth in the coming years when utilization of new capacity ramps up. np/ton to improve with capex cycle completed ndps profitabi

35、lity has deteriorated in recent years, from the rmb300+/ton level prior to fy10 to rmb117/ton in fy12, which we believe is the trough, due to 1) the price/price relative end of industry-wide overcapacity-led margin erosion, and 2) surging financing 11/105/1111/115/12 costs eating up operating margin

36、, on top of the macro downturn. as ndp has nine dragons paper hang seng index (rebased) largely completed the capex cycle, which tripled in the past six years, and has made efforts to optimize the capital structure, we project its profitability to improve gradually to rmb220/ton in fy15e, supported

37、by lowered financing costs and industry capacity rationalization. performance (%) absolute hang seng index 1m 21.1 1.5 3m 51.2 10.0 12m 20.4 23.6 raising target price to hk$7.1; maintaining buy and top pick in sector based on more gradual pricing recovery, we reduce our fy13/14 revs forecast by 5.7%

38、/5.3% and np by 27.5%/15.6% on more conservative margins and effective tax rate assumptions. we raise our tp by 27% to hk$7.1 (24% upside potential) in the wake of sector re-rating, improving fundamentals and most importantly, faster roe improvement (despite lower than lmp currently), based on a p/b

39、 of 1.4x cy13e while the stock is trading at 1.1x. maintaining buy. key risks: leveraged balance sheet and continued margin contraction. forecasts and ratios year end jun 30 sales (cnym) reported npat (cnym) db eps fd(cny) old db eps fd(cny) % change db eps growth (%) per (x) dps (net) (cny) yield (

40、net) (%) 2011a 24,386.9 1,967.8 0.38 0.38 0.0% -17.3 23.6 0.10 1.1 2012a 27,169.7 1,420.2 0.23 0.37 -38.0% -40.0 19.7 0.07 1.6 2013e 30,938.3 1,461.4 0.31 0.43 -27.5% 36.7 15.0 0.07 1.6 2014e 35,292.5 2,201.6 0.47 0.56 -15.6% 50.6 10.0 0.11 2.3 2015e 37,689.4 2,850.1 0.61 29.5 7.7 0.14 3.0 source: d

41、eutsche bank estimates, company data page 18deutsche bank ag/hong kong 8 27 november 2012 mid maintaining hold on valuation stronger profitability through efficiency and prudence; yet valuation rich lmp reported strong fy1h13 results, due to an unexpected margin improvement both yoy and hoh, whereby

42、 it only recorded a -8% yoy decline in np/ton in an extremely adverse macro environment. we believe lmp achieved better-than- industry profitability through: 1) a prudent management style, 2) efficiency through hang seng index vivian hao research analyst (+852) 2203 6241 key changes 21,862 well-mana

43、ged costs, and 3) lower funding costs and gearing ratio. however, the recent stock rally has largely reflected these merits, such that we deem the stock to be trading close to its revised par value with limited upside potential; maintaining hold on valuation grounds. stable cash margins to witness e

44、xpansion in late 2012 lmps major product asps declined from the beginning of year to slightly over price target sales (fye) op prof margin (fye) net profit (fye) 2.80 to 4.80 16,598 to 15,703 11.3 to 12.0 1,446.3 to 1,538.2 71.4% -5.4% 5.9% 6.4% rmb3,000+ levels by august, yet the company has mainta

45、ined relatively stable cash margins, recording the widest spread in jan cy12. however, with the sudden surge in occ prices in october and a lagging market price for finished products, cash margins have been squeezed slightly. we expect the cash margin to see some strength towards year-end, given the

46、 positive seasonality. price/price relative key op metrics show relative strength; steady recovery in net profit/ton similar to the other players, lmp faced a tough macro environment and 3.0 2.0 11/105/1111/115/12 recorded its lowest np per ton (albeit a narrower dip vs. other players) post the 2008

47、 financial crisis in fy1h13. looking forward, we expect np per ton to trough lee maintaining hold on valuation grounds we tweak our fy13/14e revenue and np estimates for lmp by -5.4%/-4.3% and +6.4%/-1.0% respectively. we raise our target price to hk$4.8 (+71%) based on rolled-over 1.4x pb cy13. how

48、ever, we expect lmp to generate limited upside over the current price, which is already trading at 1.3x pb; maintaining hold. key downside risks: potential capacity cap and a sudden rise in input costs. upside risk: faster-than-expected improvement in np/ton. forecasts and ratios year end mar 31 sal

49、es (hkdm) reported npat (hkdm) db eps fd(hkd) old db eps fd(hkd) % change db eps growth (%) per (x) ev/ebitda (x) dps (net) (hkd) yield (net) (%) 2011a 14,034.3 1,848.0 0.39 0.39 0.0% -2.4 15.1 12.5 0.14 2.3 2012a 14,715.6 1,351.4 0.29 0.27 8.2% -26.2 12.9 11.9 0.10 2.7 2013e 15,703.1 1,538.2 0.33 0

50、.31 6.0% 12.6 13.5 11.4 0.10 2.3 2014e 18,226.9 1,924.5 0.41 0.41 -0.4% 25.1 10.8 9.5 0.12 2.8 2015e 20,437.2 2,448.8 0.52 27.2 8.5 7.7 0.16 3.6 source: deutsche bank estimates, company data page 20deutsche bank ag/hong kong 27 november 2012 mid as a result, the recommendations may differ and the pr

51、ice targets and estimates of each may vary widely. in august 2009, deutsche bank instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a hold rating. in particular, this will typically occur for hold rated stocks having a mar

52、ket cap smaller than most other companies in its sector or region. we believe that such policy will allow us to make best use of our resources. please visit our website at http:/ to determine the target price of any stock. the financial instruments discussed in this report may not be suitable for al

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