For the first half year, the company realized operating revenue of Rmb1.875bn (+31.96 yoy), operating profit of Rmb241mn (+152.56 yoy), net profit attributable to parent of Rmb178mn (+189.13 yoy) and basic EPS of Rmb0.35. Additionally, Q3 prediction expected an over 50% yoy increase in accelerative net profit from beginning 2008 to the end of next period.
Revenue increased by price rises and new projects. Price of core products, printing-and-writing paper and white paperboard, sharply soared and greatly enhanced the revenue with Rmb620mn (+16.92% yoy) and Rmb745mn (+26.34% yoy) respectively during the period under view. Besides, a 150,000-ton gypsum surface paper project will be put into production in the second half and bring revenue of Rmb161mn.
Profit rapidly grew mainly due to gross margin increase and lowered income tax rate. Net profit went up nearly 190% yoy, mostly benefiting from gross margin increment, of which, gross margin of printing-and-writing paper advanced 9.07ppt yoy while white paperboard, +4.21ppt. Furthermore, real income tax rate dropped 15.27ppt yoy under the new income tax policy.
New projects will be future highlights. The company has put 95,000 ton slurry thread and 350,000 ton high-grade packaging paperboard into production in May; which is expected to profit in 2H2009 and become new source for margin growth.
Potential risks: Risks rest with cost hikes and diminished demand from downstream due to GDP slowdown.
Earning forecast and ratings: We hold earning forecast 2008-2009E be Rmb0.78 (implied PE of 9x) and Rmb0.93 (implied PE of 8x) and reiterate “Overweight” rating.