德意志银行-中国行业研究-trip takeaways：a bubble is brewing but it may not burst yet-20170712-deutschebank

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1、DeutscheBankMarketsResearchAsiaIndustryDateChinaChina12July2017ResourcesContainerboardIndustryUpdateJohnsonWanTriptakeaways:AbubbleisbrewingResearchAnalyst(+852)22036163butitmaynotburstyetjohnson.wan@db.comTakeawaysfromDongguanandShenzhenpapertripon5-6JulyCompaniesFeaturedWemetwitht

2、heenvironmentalbureauandpapermillandboxboard/boxLee&ManPaper(2314.HK),HKD7.49Holdmakers.WebelievetherecentpaperpricehikeshavebeenmostlyspeculativeNineDragonsPaper(2689.HK),HKD10.50Sellinnature,startingwith1)areducedsupplyduetoproductionhaltsbyleadingSource:DeutscheBankpapermills,2)a

3、bnormalrestockingbydownstreamusersanticipatingapeak4Q,and3)higherOCCpricingduetoreducedimportquotasandaggressiveRelatedrecentresearchDateChinesebidding.Acrosstheverticalchain,paperinventoriesarehighat41Hpreview:Astrongbeatat11Jul2017months(normally1-1.5months)withmostboxmakersover-s

4、tocked.Duetopeakcyclemarginsweakdemand,smallmillshavebeguncuttingpricesbyRMB200-300/twhileJohnsonWanlargemillshavebeguncuttingpurchasepricesfordomesticOCCbyRMB150/t.Source:DeutscheBankgSalesstrategychangessince4Q16tohoardinventoryandkeeppricinghighSince4Q16,leadingpapermillshavealte

5、redtheirsalesstrategybyholdingValuationandrisks:WevalueNDPandLMPusingFY18EPBvs.ROE.WevalueNDPusingbackproduction(NDPsellingc.5.7-5.8mtforCY1H17vs.atargetof6.2-6.5mt)0.9xFY18EPBon11%ROEtoderiveitstargetandcancellingfixedpricecontractswithdownstream.Asaresult,smallermillspriceofHKD7.0

6、0/sh.OurTPimplies8.5xFY18havegainedmarketshareandareoperatingathigherutilizationrates.AnPEversusNDP’smid-cycleaverageof10.5x.artificiallytightsupplyenvironmenthasledtohigherpricesandspeculativeWevalueLMPusing1.6xFY18EPBbasedonbuyingbyboxmakers,withsomerentingextrastoragespacetohoard

7、paper.18%ROEderivingourtargetpriceofHKDSincepurchasesofpaperareplacedoncredit,asuddendropinthepaper8.06/sh.OurTPalsoimplies9.5xFY18PEpricecouldhurtthecashflowofboxmakersandleadtoapricefreefall.ForversusLMP’smid-cycleaverageof10.2x.Wenow,papermillsanddistributorshavelowinventories,so

8、thepricebubblebelie