【研究报告内容摘要】
Event
Per our updated analysis of new containerboard projects in China (Fig 13) weexpect net supply growth to slow down to ~3-4% in 14-16E vs. 6-12% in 2011-13 and thus utilization to rise to 88% in 16E from 82% in 2013. We forecastcontainerboard price to recover by +1%/5% in 14/15E. We cut Lee & Man’s14/15E EPS by 9%/10% and TP to HK$5.5 based on 1.4x 2014/15E blendedBVPS. We also lower Nine Dragon’s 2014/15 EPS by 1-6% on back of 1-3%ASP cut and TP to HK$7, based on 1.1x 2014/15E BVPS. We switch our toppick to LM owing to its high ROE, quality B/S, and lower impact frompotential Rmb depreciation.
Impact
We expect 1%/5% price hike in 14-15E: Given slowdown in supply additionand accelerated phaseout of small/inefficient capacities owing to tighter auditof compliance to environmental standards, we expect the supply-demandoutlook to recover in 2014 and be much better in 2015/16. As such we expectprices to stabilize this year (after 2 years of decline) and start to accelerate in2015-16 at +5% pa. As a result, we expect LM to enjoy NP/t growth of 3-5% toHK$427-484/t and ND 13-18% NP/t growth to Rmb 170-220/t.
Profitability improvement in 2Q from OCC px drop: US/China OCC px hasdropped 13%/6% from recent highs due to a slight slowdown in demand due tothe slack season. As such, we expect domestic containerboard px to dropslightly in 2Q14, in line with seasonality. However, we believe the cost drop dueto lower OCC px should be much bigger than the ASP drop, leading to a bettermargin in 2Q. We expect containerboard and OCC px to pick up in 2H14 due toseasonal pickup in demand after maintenance downtime in April/ May.
Effect of RMB depreciation might not be as bad as investors think: TheRmb has depreciated against the USD by 2.6% YTD. We estimate that NDcould see a ~6% impact to 2014E core earnings (& FX loss ~10%) given 1%depreciation of the Rmb while LM could see ~4% impact. However, thestronger USD could lead to a lower US OCC price and producers can switchto higher proportion of domestic OCCs and thus the net impact may besmaller than expected.
Top pick switch to Lee & Man
Lee & Man: Top pick given our positive view of the containerboard market in2014-16E, its efficient cost structure, healthy BS and limited impact from RMBdepreciation. We see improved margin in Q2 due to big US OCC pricedecline. We consider the recent share price correction (-12% since Feb vs+5% for HSI) due to soft paper price and RMB depreciation concerns asoverdone; current valuation looks attractive at 1.1x 2015E PB (vs.1.4x histavg.) and 8.3x 15E PE (vs. 12x hist avg.).
Nine Dragons: We like ND given its high leverage to paper price recovery,improving BS and financing efficiency, and attractive valuation. Yet, we switchour top pick to Lee & Man given RMB depreciation would have a much biggerimpact on ND and may be a short-term overhang for the stock. It’s trading atan attractive valuation of 0.8x 15E PB vs. hist avg. of 2x, and ROE of 10%.