Nine Dragons posts FY2019 profit of RMB3.86 billion, to add another 2.6 million tonnes of papermaking capacity in the next two years

On September 24, Nine Dragons Paper announced its FY2019 results. For the year ended June 30, 2019, Nine Dragons' total sales were approximately RMB54.647 billion, up approximately 3.5% year on year; profit was approximately RMB3.860 billion, down 50.82% year on year.

In terms of capacity, Nine Dragons Paper currently has a total designed annual papermaking capacity of 15.52 million tonnes and expects to reach 18.12 million tonnes by the end of 2021; its current total designed annual pulp-making capacity (wood pulp and recycled pulp) is 370,000 tonnes and is expected to reach 1.61 million tonnes by the end of 2021. The nine packaging plants acquired this year have a total designed annual capacity of 1 billion sq m.

Nine Dragons Paper announces its FY2019 results

As for the decline in results, Nine Dragons Paper said that with the shadow of the Sino-US trade dispute still lingering, affecting the confidence of downstream customers and consumers, and with product selling prices of paper enterprises large and small generally under pressure, the profit level fell from a high level this year. Even so, Nine Dragons Paper's finances remained sound this year, with sales and sales volume reaching new highs. Specifically:

Sales

In FY2019, Nine Dragons Paper's sales revenue was RMB54.647 billion, up approximately 3.5% year on year. Of this, the packaging paper business was the main source of sales revenue at RMB46.944 billion, accounting for 85.9% of total sales revenue; sales revenue from cultural paper, high-value specialty paper and wood pulp products was RMB7.703 billion, accounting for 14.1% of total sales revenue.

In terms of individual paper grades, in FY2019, sales revenue from carton board, high-strength corrugating medium, coated grey-back white board, cultural paper, high-value specialty paper and pulp products accounted for approximately 47.9%, 21.3%, 16.7%, 11.9% and 2.2% of total sales revenue respectively. In 2018, these figures were 52.2%, 23.7%, 18.4%, 5.1% and 0.6% respectively.

Gross profit and gross profit margin

In FY2019, Nine Dragons Paper's gross profit was approximately RMB8.439 billion, down 27.2% from RMB11.585 billion in FY2018. Gross profit margin decreased from 21.9% in FY2018 to 15.4%. Nine Dragons Paper said this was mainly due to the decline in product selling prices this year under the impact of intensifying Sino-US trade tensions.

Net profit

In FY2019, profit attributable to equity holders of Nine Dragons Paper decreased from RMB7.848 billion in FY2018 to RMB3.860 billion, down 50.82% year on year. Excluding exchange losses on operating and financing activities (net of tax), profit attributable to equity holders of Nine Dragons Paper decreased by approximately 48.9% to approximately RMB4.024 billion, mainly due to the decline in product selling prices and the decline in profit margin.

To reach 18.12 million tonnes of papermaking capacity by the end of 2021

To respond to changes in the overall environment and market demand, in 2019 Nine Dragons Paper, while consolidating its existing mid- to high-end customer base, enhanced the diversity of its product mix by promoting cost-effective "Jianglong" brand products and expanded its coverage of the mid- to low-end market, so as to increase the group's overall sales volume and market share.

In terms of capacity, Nine Dragons Paper newly commissioned 550,000 tonnes of annual capacity at its Chongqing base this year. At present, Nine Dragons Paper's total designed annual papermaking capacity is 15.52 million tonnes. It originally planned to commission a total of 2.05 million tonnes of annual carton board capacity in Shenyang, Hebei, Quanzhou and Dongguan before the third quarter of 2019, but this has been postponed accordingly due to delays in civil works, design and commissioning engineering during actual construction.

In addition, Nine Dragons Paper plans to add 550,000 tonnes of annual carton board capacity in Malaysia before the end of 2021. It is expected that after all papermaking plans are completed, Nine Dragons Paper's total designed annual papermaking capacity will reach 18.12 million tonnes by the end of 2021. Details of the latest papermaking commissioning plans are as follows:

To reach 1.61 million tonnes of pulp-making capacity by the end of 2021

The introduction of the imported recovered paper quota policy has led to a reduction in raw material supply. Domestic recovered paper collection is not expected to fully meet market demand, and the impact of the recovered paper supply gap on the papermaking industry cannot be ignored. To this end, Nine Dragons Paper has actively broadened its domestic recovered paper procurement channels and closely monitored the quality of domestic recovered paper.

At the same time, Nine Dragons Paper already has a detailed pulp-making commissioning plan, and particularly hopes to better control the stability of raw material supply, production quality and cost effectiveness by strengthening upstream recycled pulp capacity. As of June 30, 2019, Nine Dragons Paper's total designed annual pulp-making capacity (wood pulp and recycled pulp) was 370,000 tonnes, of which its Old Town plant in the United States began producing unbleached softwood kraft pulp in August 2019, with an annual capacity of 160,000 tonnes.

In September this year, Nine Dragons Paper also acquired a company in Malaysia with an annual recycled pulp capacity of 480,000 tonnes. As a result, Nine Dragons Paper's total designed annual pulp-making capacity (wood pulp and recycled pulp) is currently 850,000 tonnes. Nine Dragons Paper plans to add a further 560,000 tonnes of annual recycled pulp capacity and 200,000 tonnes of annual wood pulp capacity at its existing pulp and paper mills in the United States before the end of 2021.

It is expected that after all pulp-making plans are completed, Nine Dragons' total designed annual pulp-making capacity (wood pulp and recycled pulp) will reach 1.61 million tonnes by the end of 2021. Details of the latest pulp-making (wood pulp and recycled pulp) commissioning plans are as follows:

The acquired packaging plants have a total designed annual capacity of 1 billion sq m

In particular, it is worth noting that this year Nine Dragons Paper also extended into the downstream industry chain through the acquisition of packaging plant businesses, producing corrugated board and cartons. The acquired packaging plants are equipped with advanced automated equipment, have a total designed annual capacity of 1 billion sq m, and are located close to the group's papermaking bases.

Nine Dragons Paper said that under the influence of the two major factors of supply-side reform and the market, large paper enterprises will benefit from industry consolidation:

First: the government will continue to strengthen environmental regulation and shut down non-compliant production.

Second: the government is gradually tightening the approval of recovered paper import quotas. Facing tight raw material supply and rising costs, the operating pressure on small and medium-sized enterprises is worsening;

Third: China's manufacturing industry is undergoing transformation and upgrading, and large enterprises have more resources to invest in R&D and intelligentization. The future of the papermaking industry will move toward automation and intelligentization, forcing small and medium-sized enterprises with backward papermaking machinery and equipment out of the market.

Nine Dragons Paper is already prepared. Leveraging its competitive advantages as an industry leader, it will integrate domestic raw materials and markets, strive to maintain a stable supply of raw materials, expand its market share in the mid- to low-end market, maintain healthy debt levels and cash flow management, and ultimately improve its overall profitability.