Nine Dragons paper pushes ahead with capacity expansion projects for bleached folding boxboard, sack kraft, and WPP with a total production capacity of 2.00 million tonnes

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The Group will endeavor to raise the proportion of high value-added products.

Nine Dragons paper pushes ahead with capacity expansion projects for bleached folding boxboard, sack kraft, and WPP with a total production capacity of 2.00 million tonnes 

One of the largest paper manufacturing groups worldwide, Nine Dragons Paper (Holdings) Limited has also felt the heat of sluggish consumption under the impact of the pandemic containment measures in mainland China. The Group achieved a revenue of approximately RMB 30,611.2 million for the six months ended on 31st December 2023, representing a decrease of approximately 1.9% as compared with the corresponding period last year.

During the Period under review, the economy contended with a weaker-than-expected post-pandemic recovery. The lackluster consumer confidence and the generally insufficient demand dragged on the packaging paper market to a certain extent and were far from adequate to sustain the price level of products. Meanwhile, the packaging paper industry was also under downside pressure in the face of thrashing from various factors such as high interest rates, increased market supply, and intensified import competition.

Review of Operations

Despite the challenging operating environment, leveraging its consistent product quality and product diversification strategy, the sales volume of the Group registered an increase of 16.3% to 10.0 million tonnes during the Period, hitting a record high. At the same time, we, on the one hand, optimized the raw material structure and kept a close tab on the supply and prices of raw materials, while on the other hand, implemented our refined production and sales management, inventory management, and a series of cost-saving measures, thereby effectively improving our profitability and ultimately achieving a turnaround from loss to profit. In addition, we further strengthened our risk management and control, hence successfully minimizing the risks in relation to working capital, foreign exchange, and cash flows.

During the Period, several new projects of the Group commenced production successfully. Among these, the new base in Beihai was also officially put into operation, which further expanded the Group’s market coverage. As of 31 December 2023, the Group’s total design production capacity for fiber raw materials amounted to 4.72 million tpa (wood pulp of 2.17 million tonnes, recycled pulp of 0.70 million tonnes, and wood fiber of 1.85 million tonnes), and total design production capacity for paper amounted to 21.12 million tpa, while the total annual design production capacity for downstream packaging plants exceeded 2.8 billion sq.m.

Additionally, 0.20 million tpa for wood pulp as well as 0.55 million tpa for printing and writing paper in Beihai started operation in January 2024.

Capacity Expansion Plan

The Group has the advantages of vertical integration of the supply chain, which includes high-quality and sustainable raw material supply, an efficient scale of paper production, and a downstream packaging business. The Group has been taking progressive steps to realize the blueprint of integrated pulp and paper production. Aside from adding an annual production capacity of 1.70 million tonnes for wood pulp in Beihai and 0.42 million tonnes for wood fiber in Beihai and Malaysia, the Group also pressed on with capacity expansion projects for paper production in respect of bleached folding boxboard, sack kraft paper, and printing and writing paper with a total production capacity of 2.00 million tonnes in Beihai and Jingzhou. Upon completion of the above projects, the Group’s total design production capacity for fiber raw materials will reach 7.04 million tpa (wood pulp of 4.07 million tonnes, recycled pulp of 0.70 million tonnes, and wood fiber of 2.27 million tonnes), and the total design production capacity for paper will reach 23.67 million tpa. These projects would lay a solid foundation for improving structural profitability in the future.

Financial Review

Revenue
The Group achieved a revenue of approximately RMB 30,611.2 million for the Period, representing a decrease of approximately 1.9% as compared with the corresponding period last year. The major contributor to the Group’s revenue was still its packaging paper business, including linerboard, high-performance corrugating medium, and coated duplex board, which accounted for approximately 91.9% of the revenue, with the remaining revenue of approximately 8.1% generated from its printing and writing paper, high-value specialty paper and pulp products.

The Group’s revenue for the period decreased by 1.9% as compared with the corresponding period last year, resulting from the net-off effect of the increase in sales volume of approximately 16.3% and the decrease in average selling price of approximately 15.6%.

The Group’s annual design production capacity in packaging paperboard, printing and writing paper, high-value specialty paper, and pulp products as of 31 December 2023 was approximately 24.0 million tpa in aggregation, comprising approximately 13.4 million tpa of linerboard, approximately 3.7 million tpa of high-performance corrugating medium, approximately 2.6 million tpa of coated duplex board, approximately 1.1 million tpa of printing and writing paper, approximately 3.2 million tpa of high-value specialty paper and pulp products. The four US mills capacity of approximately 1.3 million tpa, including approximately 0.9 million tpa coated one-side, coated freesheet, and coated groundwood grade for printing and writing paper and specialty paper products, and approximately 0.4 million tpa recycled pulp and wood pulp products.

The Group’s sales volume increased by approximately 16.3% to 10.0 million tonnes as compared with 8.6 million tonnes in the corresponding period last year. The increase in sales volume was driven by an approximately 1.2 million tonnes increase in the China business.

The sales volume of linerboard for the period increased by 9.1% while high-performance corrugating medium and coated duplex board for the period decreased by approximately 5.6% and 2.0% respectively as compared with those in the corresponding period last year.

The majority of the Group’s revenue continued to be realized from the China market, in particular from the linerboard and high-performance corrugating medium sectors. For the Period, revenue related to China consumption represented 89.3% of the Group’s total revenue, while the remaining revenue of 10.7% represented sales recorded in other countries outside China.

The gross profit for the Period was approximately RMB2,705.6 million, an increase of approximately RMB2,019.5 million or 294.4% as compared with RMB686.1 million in the corresponding period last year. The gross profit margin increased from 2.2% in the corresponding period last year to approximately 8.8% for the Period mainly due to the decrease in the cost of raw materials being more significant and faster than the decrease in the selling price of the products; and the wood pulp operation in various bases commenced production which optimizes our fiber and raw material mix, therefore, lower the cost of raw materials at the same time.

Future Outlook

Looking forward to the second half of the financial year, as China gradually implements various stimulus policies, a boost in consumer confidence can be expected, which will be conducive to driving the demand in the packaging paper industry. However, factors such as zero tariff on imported paper and new supply of production capacity remain in play, and economic growth and consumer confidence also take time to ramp up while constraints of varying geopolitics linger. As such, the current business environment continues to be clouded by uncertainties. In the mid-to-long term, market drivers such as opportunities arising from both the trend of replacing plastic with paper and consumption upgrades as well as the tightened raw material supply will further underscore the Group’s competitive advantages of integrated pulp and paper production, which will be beneficial to enhancing its market share and broadening its earning base.

The Group will strive to strike a proper balance between production and sales, and complete the raw material expansion plans both at home and abroad in an orderly manner. With a focus on fostering profitable growth in the long run, the Group will endeavor to raise the proportion of high-value-added products.