3Q25 results in line with our expectations Xianhe Co., Ltd. announced its 3Q25 results: revenue rose

15.5% YoY to Rmb3.07bn, net profit attributable to shareholders grew 13.86% YoY to Rmb304mn, and recurring net profit attributable to shareholders increased 1.45% YoY (mainly due to government subsidies) to Rmb247mn. The firm’s 3Q25 results were in line with our expectations.

Comments: 1) Steady growth in paper production and sales

volume. We estimate the firm’s paper production and sales volume at 350,000-400,000t in 3Q25, with specialty paper output rising more than 25% YoY to 300,000-350,000t, driven by new production bases in Guangxi and Hubei.

2) Self-produced pulp boosted profit. As of 3Q25, the firm

announced the completion of its Phase I projects in Hubei and Guangxi, with a high proportion of integrated pulp and paper production. We estimate that the firm sold about 80,000t of pulp in these two regions during 3Q25, contributing to profit growth.

3) Net profit per tonne improved despite headwinds. We

estimate that the firm’s net profit per tonne increased by about Rmb100 QoQ in 3Q25. We believe paper prices will remain under pressure QoQ amid weak supply-demand conditions. We attribute the QoQ improvement in profit per tonne to lower- priced pulp and the increased use of self-produced pulp.

4) Xiawang’s profit remained solid. In 3Q25, investment

income reached Rmb53mn. We estimate that Xiawang’s output and sales volume remained stable at around 80,000t during the quarter, with net profit per tonne exceeding Rmb1,000. 5) High capex. In 1-3Q25, net operating cash flow rose 105% YoY to Rmb919mn, while capex reached Rmb1.40bn and the gearing ratio stood at 66%. The firm previously announced a plan to raise up to Rmb3bn via a private placement to fund　　Phase II construction of the Sanjiangkou New Area project in Guangxi. We suggest monitoring the firm’s fundraising progress.

Trends to watch Pulp-paper integration taking shape; watch cost of self-

produced pulp. Since 2024, the firm has accelerated the construction of its production bases in Guangxi and Hubei, completing the Phase I project. Its advantages in pulp-paper integration have begun to contribute incremental profit. 2025 will be a key year for the firm to expand production capacity and capex, and we expect full-year output and sales volume to grow more than 25% YoY. Going forward, the firm will focus primarily on Phase II projects in Guangxi and Hubei, as well as the bamboo pulp project in Sichuan, with capex likely to remain high. We are optimistic that the firm will further strengthen cost efficiency along the industry chain by expanding product categories, increasing capacity, and consolidating its leading position. Meanwhile, we suggest paying attention to the cost control of self-produced pulp, as domestic capacity expansion has accelerated in recent years.

Financials and valuation

We keep our 2025-2026e earnings forecast unchanged. The stock is trading at 14x 2025e and 12.2x 2026e P/E. We maintain an OUTPERFORM rating and a target price of Rmb25, implying 15.3x 2025e and 13.3x 2026e P/E, offering 9% upside.

Risks

Disappointing demand; sharper-than-expected fluctuations in pulp prices; higher-than-expected new supply.