Paper industry: the inflection point is not concerned about the investment value of several types of companies

Shenyin Wanguo

Zhou Haichen

event:

Recently, the paper sector has seen a big increase, especially on January 19, when the sector rose by 4.48%, ranking first among all sectors. Among them, most of Shenwan key paper companies increased by more than 6%, leading companies Chenming Paper More importantly, the company announced that the sale of Shanghai Chenming's equity had been completed on the same day, and the remaining equity transfer funds, equivalent to 30.75 million yuan, were received, and the company was relieved of all its guarantee obligations for the original Shanghai Chenming of 190 million yuan after receiving the notice from the relevant bank.

Comments:

1. The main driving force for the rise of the paper sector came from the undervaluation of paper companies. The growth and relatively stable profitability of companies are also important reasons for attracting capital attention.

Compared with the PE level of the overall listed companies, the PE level of the paper sector is obviously a valuation depression (the dynamic PE of Shenwan key companies in 2006 and 2007 was 22x and 16x). In addition, the PE level of A-share paper companies is also significantly lower than that of Hong Kong (dynamic PE in 2006 and 2007 was 31x and 21x) and foreign paper companies (dynamic PE in the U.S. market was 30x and 23x in 2006 and 2007). It is worth noting that as China's paper consumption is still in the initial stage of strong growth, paper companies with competitive advantages will maintain rapid growth with the industry. In addition, in recent years, major paper companies have relatively stable profitability. In particular, the short comment is that the net profit of leading companies in the first tier has increased by about 20% in the past three years, and even some companies have reached 30%.

2. Some questions about paper companies.

The low valuation level of domestic paper companies in the market is mainly due to the following doubts: First, most of China's paper companies do not realize the integration of forest pulp and paper, and China's forest land resources are relatively scarce (the forest coverage rate is only 18.21%, ranking 130th in the world). At the same time, the domestic waste paper recycling system is not perfect (only 30-40%, while the U.S. waste recycling rate is 80-90%) And the content of recycled fiber is low, so a large number of imported pulp and American waste are needed. Influenced by China's massive procurement, the price of international pulp and American waste has risen rapidly in recent years, and domestic paper companies are facing the bottleneck of raw materials; Second, the domestic production capacity is released too fast. In 2006, the production of paper and paperboard was about 64 million tons, with a year-on-year increase of 14%, exceeding the consumption growth (11%). In 2007, it is expected to exceed 67 million tons. Some domestic paper varieties will be oversupplied, which may lead to vicious price competition; Third, the capital expenditure of paper companies is too large, and the import of equipment is often billions.

3. In view of the above questions, we believe that

(1) The bottleneck of raw materials. At present, companies are increasingly paying attention to the importance of forest pulp paper integration, extending upstream through various ways to solve the bottleneck of raw materials, such as purchasing forest pulp farms at home and abroad, renting land to plant trees, and setting up overseas sites to purchase packaged and classified waste paper. In addition, South America and other local pulp mills have successively released capacity in 2007 (the global new pulp capacity in 2007 and 2008 was about 3.8 million tons and 3.1 million tons respectively), and the problem of raw materials will be partially alleviated;

(2) About overcapacity. For the capacity release, we believe that we should distinguish between different sub sectors of the paper industry. At present, the supply of newsprint, coated paper and other printing paper is facing an oversupply situation, and there is a trend of gradual expansion (the output of newsprint in 2006 is about 3.9 million tons, and the consumption is 3.6 million tons; the output of coated paper in 2006 is about 3.6 million tons, and the consumption is 3.2 million tons) Packaging paper such as kraft liner plate paper still has room for development with the rapid growth of downstream (consumption of food, beverage, clothing and light industrial products export) (the output of white board paper in 2006 was about 8.5 million tons, and the consumption was 9 million tons; the output of box board paper in 2006 was about 12 million tons, and the consumption was 12.5 million tons). Therefore, smooth export channels for the former will become a key factor, For the latter, it is necessary to improve product competitiveness and develop high-end new products.

(3) About capital expenditure. According to our research on key companies, in order to achieve economies of scale, maintain industry status and achieve forest pulp paper integration, the future capital expenditure of major companies is still large, but the growth rate will slow down. This is a common feature of paper companies, as is the case with foreign companies, but at a certain stage of development, the relative capital expenditure is less.

4. The inflection point of the paper industry has not yet been reached, and attention should be paid to the investment value of several types of companies.

We believe that as the industry competition will continue to intensify due to the continuous release of capacity, the company will not only face the risk of falling product prices, but also bear the pressure of rising raw material prices. The inflection point of the paper industry has not yet arrived, but some companies will take advantage of the opportunities of industry integration to develop rapidly. In addition, the upcoming Paper Industry Development Policy and the 11th Five Year Plan Outline for Paper Industry Development will further standardize the paper industry and help enterprises with economies of scale and environmental advantages develop.

The investment value of high-quality listed companies deserves special attention: first, they have raw materials, etc Resource advantages Paper company, Yueyang Paper ； Second, leading enterprises with obvious scale advantages and international competitiveness, Huatai Shares Chenming Paper; Third, companies with fast growth in their sub industries and competitive advantages in products, such as Sun Paper; Fourth, enterprises with potential for foreign cooperation.