Nine Dragons shares plummet 9pc

PUBLISHED : Wednesday, 14 February, 2007, 12:00am
UPDATED : Wednesday, 14 February, 2007, 12:00am

Announcement of forecast-beating 69pc jump in first-half profit and capacity expansion plan fails to impress investors

Shares of Nine Dragons Paper (Holdings), controlled by the mainland's richest woman, Cheung Yan, fell as much as 10.8 per cent yesterday despite the company announcing a 69 per cent jump in first-half net profit at midday on improved margins due to economies of scale.

The mainland's leading maker of containerboard posted a net profit of 948 million yuan or 23 fen per share for the six months to December compared with 560.2 million yuan or 19 fen per share a year earlier as sales rose 22.9 per cent to 4.64 billion yuan.

The earnings beat BNP Paribas' forecast of 855 million yuan and SinoPac's 862 million yuan but still underwhelmed investors, who last week lifted the stock 21.6 per cent.

The shares closed 9.01 per cent lower at HK$15.96 after dipping as low as HK$15.64. But they are up almost 370 per cent since the company's initial public offering in March last year.

Gross margin for the half rose 4 percentage points to 26 per cent which the company attributed to increased economies of scale from production capacity expansion.

The company will spend nine billion yuan over the next two years, including 3.5 billion yuan this business year, to raise its annual production capacity for containerboard 72 per cent to 7.75 million tonnes by June next year.

Ms Cheung, the chairwoman and co-founder of Nine Dragons, said the expansion was essential to achieve the company's target of a 30 per cent market share of mainland paper output within three years.

'We estimate our market share at 18 per cent and aim to increase it to 22 per cent or 23 per cent next year,' she said.

The firm plans to expand its three plants - in Dongguan, Guangdong province; Taicang, Jiangsu province; and Chongqing - after acquiring an additional 5.3 million square metres of land in these areas. It said it planned to build another factory in northern China but refused to give details.

Nine Dragons has been riding the mainland's export surge. RISI, an information provider on the mainland forest products industry, projects that from last year the country's containerboard output will rise 41.5 per cent to 26.6 million tonnes in 2009 while demand will grow 37.6 per cent to 28.2 million tonnes.

Ms Cheung said that to ensure reliable supply of stock, the company was looking to buy an upstream pulp production plant. 'The plant should have at least a 14 per cent return ... so far, we have not found the ideal one,' she said.

The company had no immediate plans to place shares but would consider the move if there was a need to fund developments, Ms Cheung said.

The company declared an interim dividend of 1.6 fen per share.

According to the Hurun Report, a list of the mainland's richest people, Ms Cheung last year vaulted from 36th place to become the mainland's wealthiest person - the first woman to hold the top ranking. She has amassed an estimated US$3.4 billion fortune following the surge in Nine Dragons shares.