【Top 100 Perspective】Self-made pulp, no worries! Nine Dragons Paper's profits surge over 300%

Author: Remote

After years of intense price wars, the domestic paper industry has finally moved away from chaotic competition in the “Red Sea” and entered a strong cyclical turning point with improved supply and demand dynamics.

Against this backdrop, leading companies such as Nine Dragons Paper (02689.HK), Lee & Man Paper (02314.HK), and Shanying International (600567.SH) are among the first to benefit. Among them, Nine Dragons Paper, with its deep integration of pulp and paper production, delivered an outstanding interim performance report for fiscal year 2026 (six months ending December 31, 2024) on February 25, becoming a benchmark in the industry’s recovery wave.

Profit Surged Over Three Times, Cost Advantages Bolster Performance Confidence

Nine Dragons Paper’s interim results are highly explosive. According to the financial report, for fiscal year 2026 interim, the company achieved revenue of 37.221 billion yuan (RMB), up 11.2% year-over-year; attributable net profit to shareholders reached 1.966 billion yuan, a staggering increase of 318.8% year-over-year. Basic earnings per share soared from 0.10 yuan to 0.42 yuan, a 320% increase.

The growth drivers stem from the company’s dual benefits of rising volume and prices. During the period, paper product sales volume increased by 8.3% year-over-year to 12.4 million tons, hitting a three-year high; amid shrinking industry supply, the average selling price rose against the trend by 2.7%, creating a strong combined effect on performance growth. The profitability improvement is even more notable, with gross profit margin rising from 9.5% to 14.4%, an increase of 4.9 percentage points, and gross profit totaling 5.347 billion yuan, up 67.4% year-over-year, indicating excellent profit quality.

A key factor behind the outstanding performance is Nine Dragons’ long-standing “pulp and paper integration” strategy. By the end of 2025, the company’s total annual fiber raw material capacity reached 8.2 million tons, including 5.4 million tons of wood pulp, achieving near self-sufficiency in core raw materials. This not only hedges against price fluctuations of purchased wood pulp but also lays a solid foundation for upgrading product structure towards higher-end and differentiated offerings.

Meanwhile, at the recent 2025 Hong Kong Wealth Management Summit and the 12th “Hong Kong Stock 100” Awards Ceremony, Nine Dragons Paper was successfully listed among the “Top 50 Medium-sized Enterprises” in the “Hong Kong Stock 100,” a recognition of its performance and competitive strength by the capital market.

Counteracting Internal Competition + Capacity Expansion, Leading Companies Benefit from Cyclical Opportunities

The domestic paper industry has long been mired in “price competition” and overcapacity, with thin profit margins as industry pain points. However, since 2025, the trend of “counteracting internal competition” has become clearer, with supply-side optimization gradually bearing fruit: most paper mills have actively reduced capacity through shutdowns and maintenance, leading to increased industry concentration and creating a favorable market environment for leading companies.

In this context, industry leaders like Nine Dragons Paper have initiated a price increase cycle. A recent report from Datong Securities states that leading firms not only successfully implemented price hikes in February but also announced plans for further increases in March. As demand for white cardboard, a core product after the Spring Festival, warms up, the likelihood of price hikes continues to rise. The report notes that overall paper prices remain stable, and with rising pulp inventories and easing costs due to falling prices, the profit elasticity of leading companies will further unleash.

Facing this strategic opportunity of industry recovery, Nine Dragons Paper has launched an ambitious capacity expansion plan. The company is advancing pulp and high-end paper capacity projects, investing in a total of 3.2 million tons of pulp capacity in Chongqing, Tianjin, Beihai, and Dongguan, while an additional 1.9 million tons of white cardboard and cultural paper capacity was fully completed between July and October 2025.

Once all projects are operational, the company’s total annual fiber raw material capacity will increase to 10.7 million tons, including 7.9 million tons of wood pulp, potentially achieving full raw material self-sufficiency. By vertically integrating the pulp supply chain, Nine Dragons can continuously reduce production costs, promote product performance upgrades, and enhance brand premiums, thereby consolidating its long-term core competitiveness.

However, risks from industry cyclical fluctuations should not be overlooked. The demand for paper is highly correlated with macroeconomic conditions, consumer markets, and export trade. If demand recovery falls short of expectations, it may impact the effectiveness of price increases; raw material price volatility and policy adjustments could also pose challenges. Additionally, the capital expenditure from expansion projects and the company’s total loans of 73.467 billion yuan place higher demands on financial stability.

Looking ahead, driven by policies to expand domestic demand, promote consumption, and the environmental trend of “replacing plastic with paper,” the supply and demand landscape in the paper industry is expected to continue improving. With its cost advantages from pulp and paper integration, high-end product structure, and precise capacity layout, Nine Dragons is well-positioned to benefit from the industry’s cyclical upswing. However, balancing expansion with risk management and maintaining profitability amid cyclical fluctuations will be key to the company’s long-term development. For investors, the release of industry cycle dividends in this leading enterprise is promising, but caution regarding potential industry volatility remains essential.