Results Review

3Q26 results in line with our expectations

The company announced its 1–3Q26 results. Revenue reached Rmb9.55bn, up 5.41% YoY; attributable net profit rose 4.36% YoY to Rmb812mn. In 3Q26 alone, revenue was nearly Rmb3.25bn, up 5.75% YoY and 3.54% QoQ; attributable net profit reached Rmb272mn, down 10.52% YoY and 6.18% QoQ; recurring attributable net profit rose 9.26% YoY to Rmb754mn. These results were in line with our expectations.

1) 3Q26 sales volume hit a new high. For 1–3Q26, cumulative sales volume exceeded 1.40mn tonnes. Revenue grew 5.75% YoY and 3.54% QoQ. However, a higher proportion of lowpriced categories dragged down ASP, and sales volume growth offset the price decline.

By category, sales volume for food and medical packaging reached around 310,000 tonnes, up 32% YoY, with breakthroughs in certification for liquid packaging and cigarette cards. Daily consumer products exceeded 600,000 tonnes, up 18% YoY. Business communication and anti-counterfeiting products surpassed 130,000 tonnes, up 43% YoY.

2) Cost pressures disrupted profitability. The GM stood at 13.3%, down 1.31ppt YoY and 2.1ppt QoQ. Operating costs rose 7.4% YoY in 3Q26. This primarily stemmed from rising prices for energy, oil additives, and imported wood pulp. The cost growth, together with promotional activities in July and August, weighed on profit per tonne.

3) Investment income from Xiawang declined. Xiawang contributed around Rmb113mn in operating income for 1–3Q26, down YoY. Stronger earnings at the parent company partially offset this decline.

4) Operating cash flow faced pressure. For 1–3Q26, net cash flow generated from operating activities reached Rmb492mn, down 46.4% YoY. This primarily stemmed from undiscounted commercial bills, alongside higher payments for employee compensation and taxes.

Trends to watch

Capacity expansion has entered the realization phase, and pulp and paper integration solidifies the cost structure.

The company plans to commission around 150,000 tonnes of capacity in 4Q26. This includes 100,000 tonnes of daily consumer materials in Guangxi, alongside capacity for insulating paper in Changshan and household paper in Hubei. The 500,000-tonne self-made pulp project in Guangxi will likely start production in 1Q27. Under high pulp prices, the company can use this pulp internally or sell it for profit. The phase II project in Guangxi plans to start production in mid-2027, and the first production line of the Cambodia base plans to start production in 4Q27. High-margin categories like insulating paper and glassine will ramp up.

Therefore, we expect 2026 growth to come from improved capacity utilization and product mix optimization. For 2027, we expect concentrated capacity releases for pulp and paper to drive volume growth. A higher proportion of self-made pulp will dilute costs, likely moving the profit center upward.

Financials and valuation

Due to cost pressure, we lower our 2026 attributable net profit forecast 9.3% to about Rmb1.20bn, and introduce a new 2027 forecast at about Rmb1.34bn. The stock is trading at 10.2x 2026e and 9.2x 2027e P/E. We maintain an OUTPERFORM rating, considering the firm's capacity expansion and synergies between pulp and paper; we lower our target price 12.00% to Rmb22.00, implying 14.9x 2026e and 13.4x 2027e P/E, offering 45.89% upside.

Risks

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