Results Review

1Q26 results beat our expectations

The company announced its 1Q26 results: Revenue was about Rmb10.08bn, up 1.9% YoY; attributable net profit was Rmb906mn, up 2.3% YoY and 20.7% QoQ; recurring attributable net profit was Rmb886mn. The results exceeded both our and market expectations, mainly because containerboard price hikes took effect and profit per tonne improved.

Containerboard’s profit per tonne improved QoQ. According to Sci99, as of March 31, containerboard prices rose by about Rmb80/tonne after the Chinese New Year (CNY) holiday. We estimate that net profit per tonne widened by around Rmb100.

By location: the Shandong base benefited mainly from price hikes; the Guangxi base saw incremental earnings from the Nanning plant (new capacity in 4Q25), with profit per tonne improving significantly (profit per tonne was low during trial production in 4Q25); the Laos base benefited from lower US waste paper costs.

Cultural paper’s profit per tonne remained stable QoQ. In 1Q26, cultural paper faced clear demand and supply pressure, resulting in weak prices. However, Sun Paper actively adjusted product mix and controlled costs. We think that the cultural paper’s profit per tonne stayed stable QoQ.

Dissolving pulp’s profit came under pressure. The end demand for dissolving pulp was weak. We think that profit per tonne, output, and sales volume declined QoQ in 1Q26.

Operating cash flow improved; capex remained high. In 1Q26, net operating cash flow was Rmb819mn, capex totaled Rmb1.77bn, and the debt-to-asset ratio stood at 47.67%.

Trends to watch

Profit per tonne may face pressure in 2Q26. 2Q is the offseason for paper demand. Pulp and paper prices are usually flat in 2Q. White paper products’ profit per tonne may continue to face pressure. For brown paper products, we need to monitor the implementation of the price hike after the May Day holiday. Regarding dissolving pulp, the downstream viscose fiber price rose, pushing up dissolving pulp prices. We expect dissolving pulp’s profit per tonne to improve QoQ in 2Q26.

Output will support steady earnings growth in 2026. The company announced that 70kt/y specialty paper production facilities came online in Shandong in January 2026; 700kt/y of packaging paper and 600kt/y of chemical pulp production facilities plan to start trial production in 3Q26. In addition, new capacity in Guangxi ramped up to full capacity at the end of 2025.

We expect the company’s paper production and sales volume to increase more than 15% YoY in 2026, supporting its earnings growth in 2026. Looking ahead, we believe the firm’s presence in Laos will gradually enter a harvest period over the next few years, which is core to sustainably increasing the company’s cost advantage and raising its valuation.

Financials and valuation

We keep our 2026 and 2027 earnings forecasts unchanged. The stock is trading at 11.6x 2026e and 10.8x 2027e P/E. We maintain an OUTPERFORM rating and our target price of Rmb18, implying 14.5x 2026e and 13.5x 2027e P/E, offering 25% upside.

Risks

Weaker-than-expected demand; higher-than-expected new production capacity; construction progress in Laos below expectations.