The hottest supply shortage promotes profit margin

2022-09-21
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Tight supply drives profit margins. HSBC raises the target price of Nine Dragons Paper and Liwen paper

release date: Source: Phoenix Hong Kong stock

HSBC Global Research and development report indicates that 2021 is a special year. The bank believes that as the import of waste paper is banned (from 2021), the profit margin expansion of paper companies may continue. HSBC expects the import of waste paper to reach 7.5 million tons in 2020 (accounting for 11% of the total raw material demand). At the beginning of the new year, however, due to the import ban, this will be lifted in 2021. Assuming that the demand will remain flat in 2021, this huge raw material gap will be filled by importing finished products (7million tons in 2020 with the increasingly widespread application of plastics) or recycled pulp (2million tons of alternative raw materials in 2020) to give full play to the role of enterprises as innovation subjects

HSBC believes that this huge raw material gap is unlikely to be filled in 2021 (as early as 2022). The bank predicts that the price of household waste paper will rise, leading to a rise in paper prices and improving the profit margins of industry leaders who have obtained sufficient raw materials, such as Nine Dragons Paper and Liwen paper. The bank expects this shift to begin when demand normalizes after the Chinese New Year

HSBC said that the bank is more optimistic about Nine Dragons Paper, because it has obtained more than 30% of the imported raw materials for the investment in the high-performance plastics business of LANXESS. In addition, the company added 2million tons of new production capacity in 2020, enabling it to gain more market share, and the company's performance announcement in February this year will become a catalyst for the recent stock price

HSBC raised the target price of Nine Dragons Paper from 12.5 Hong Kong to 14.2 Hong Kong, and Liwen paper from 6.2 Hong Kong to 7.5 Hong Kong, maintaining the "buy" rating of two stocks

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