Price Trends of Raw Materials and Products

The chart below shows the price trend of US waste paper OCC.

The following chart shows the prices of domestic waste paper. The prices of domestic waste paper went down sharply in March. In 1HFY17 the purchase value of domestic recovered paper accounted for approximately 36.7% of the total value of the Group's purchase of recovered paper.

The company produces a broad variety of packaging paperboard products, and the following chart shows the average ex-factory prices of corrugated paper of NDP. The average ex-factory prices of corrugated paper of NDP went down from high level in March.

The following chart shows the average ex-factory price of uncoated white-top kraft paper of NDP. The average ex-factory prices of uncoated white-top kraft paper of NDP also went down from high level in March.

Change of Product Prices

The company raised the price by RMB 100-200 in February. The company planned to raise the price again by RMB 100-200 in March. However, according to Wind, the average ex-factory prices of corrugated paper and uncoated white-top kraft paper of NDP all went down in March. And according to Wind, the ex-factory prices of dulex board paper, corrugated paper, uncoated white-top kraft paper, light coated white-top kraft paper and cardboard of some of the industry's companies went down in March. And the price of FBB paper went up in March.

Continuing to Consolidate its Leading Advantage

The government continued to exercise stringent control over environmental protection with high pressure. The increase in paper-making projects was affected by faster closure of outdated and inefficient capacities and much more stringent approval requirements on new capacities, especially prohibition of approval on coal fired power plants. As the industry leader, NDP has high technique of emission and will expand the production capacity in Vietnam, Shenyang, Quanzhou, Chongqing and Hebei Yongxin. The total design production capacity of NDP is expected to exceed 16 mtpa in 2018. NDP will continue to consolidate its leading advantage and this will benefit the future business.

Valuation

We maintain Accumulate Rating and lower TP to HK$9.50. We also lower our FY2017/FY2018 revenue forecasts by 1.1%/1.1% and lower our net profit forecasts by 2.8%/2.7%. Our TP of HK$9.50 represents 11.4/10.2x FY2017E/FY2018E P/E. (Closing price as at 31 March 2017)

Risk

Foreign exchange risk;

The prices of raw materials such as coal and waste paper rise.

Financials

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