3Q25 results in line with our expectation

Sun Paper announced its 1–3Q25 and 3Q25 results. In 1– 3Q25, revenue fell 6.58% YoY to Rmb28.94bn, and net profit attributable to shareholders rose 1.66% YoY to Rmb2.50bn. In 3Q25, the firm’s attributable net profit rose 2.68% YoY to Rmb0.72bn, in line with our expectations.

Comments:

Printing and writing (P&W) paper: Supply increased; prices under pressure. Industry-wide price pressure increased notably QoQ due to the release of new capacity and Chenming's recent resumption of production. Data from Sci99.com shows that prices of offset paper and coated paper fell Rmb297 and Rmb383 QoQ in 3Q25. We attribute the QoQ decline in the firm’s earnings to weakened P&W paper prices. We estimate that under current price levels, industry profit per tonne has dropped below the break-even point. We expect limited downside for prices and stable but weak prices in 4Q25.

Linerboard: Strong price performance boosted earnings growth. Due to domestic wastepaper price hikes and slight improvement in consumer demand since 3Q25 as well as General Administration of Customs’ stricter supervision of imported recycled pulp1 in October, linerboard and corrugated board prices have increased by around Rmb300 and Rmb500 since July (Sci99.com data). Looking ahead, we are upbeat on price hikes of linerboard and corrugated board in the coming quarter, given the potential strong demand at year-end.

Dissolving pulp: According to corporate filings, the firm completed the relocation of dissolving pulp production lines from Shandong to Beihai in April, and the production lines saw capacity expand in 2Q25. We expect the capacity ramp-up to be completed in 3Q25, boosting the firm’s earnings. This round of relocation and technological upgrading have made full use of the firm’s cost advantages in Beihai, serving as another outstanding case of the firm's efforts to improve its business layout and reduce costs in recent years.

High capex: In 1–3Q25, operating cash flow was Rmb3.32bn and capex was Rmb6.92bn. The firm’s liability-to-asset ratio was 47.7%. Based on the firm's capacity expansion plan, we expect its capex to enter a downward cycle in 2026.

Trends to watch

Steady capacity ramp-up of new projects to bolster earnings recovery in 4Q25 and 2026. According to corporate filings, production capacity at Sun Paper’s Guangxi base has been increasing. We estimate that the release of 1mnt linerboard, 400,000t specialty paper, and 150,000t household paper capacity in 4Q25 will generate incremental earnings for the firm. We expect its output and sales volume to rise more than 10% QoQ, driving QoQ earnings growth.

Looking ahead, the firm plans to expand its production capacity at the Shandong base over 2026–27. Specifically, it will likely add 70,000t of specialty paper, 700,000t of high-grade packaging paper, and 600,000t of chemical pulp capacity. The Shandong base, as the firm's traditional established site, is in the phase of cost reduction and efficiency improvement. From a medium-to-long-term perspective, the firm’s integrated forest-topulp production base in Laos will likely enter a harvest period, helping expand Sun Paper's cost advantage.

Financials and valuation

We keep our 2025 and 2026 earnings forecasts largely unchanged, and the stock is trading at 11.8x 2025e and 10.9x 2026e P/E. We maintain an OUTPERFORM rating and our TP of Rmb18, implying 15x 2025e and 14x 2026e P/E, offering 24.5% upside.

Risks

Disappointing demand; higher-than-expected new production capacity; sharp fluctuations in pulp prices.