Shares in Nine Dragons drop 4.36 per cent after profits miss expectations

Earnings at paper maker decline a larger than expected 27.8 per cent despite rise in turnover

PUBLISHED : Thursday, 27 September, 2012, 12:00am
UPDATED : Thursday, 27 September, 2012, 3:25am

Shares in Nine Dragons Paper dropped 4.36 per cent to HK$3.73 on heavy trading yesterday after the mainland paper maker announced its net profit fell below analysts' expectations.

Net profit of Asia's largest containerboard manufacturer declined 27.8 per cent to 1.42 billion yuan (HK$1.75 billion) in the fiscal year to June despite an 11.4 per cent rise in turnover to 27.17 billion yuan. Containerboard is used to package goods, and 89.2 per cent of Nine Dragons' revenue came from domestic consumption during the year.

The market expected Nine Dragons to post a more moderate drop in net profit of 15 per cent, said a Kim Eng Securities report. "We believe the market consensus is still too optimistic."

"The results came in below market consensus. The company's profitability for the year was low compared to historical levels," said Andrew Dale, Asia head of metals and mining at Macquarie Securities. "Demand remains tough. This is weighing on people's short-term sentiment. I don't expect demand to improve quickly."

Nine Dragons chairwoman Cheung Yan said: "The global economy will continue to be volatile in the second half, while China will adopt a prudent approach in the easing of austerity measures. Hence, the company will operate in a cautious and conservative manner in the short run."

The containerboard market would rebound gradually next year, said Cheung.

During the year, Nine Dragons' sales volume grew 17.1 per cent to 8.9 million tonnes. Kim Eng forecast its sales volume would be 8.8 million tonnes this fiscal year and 10 million to 11 million tonnes next fiscal year.

Nine Dragons said it planned to expand annual production capacity from 11.45 million tonnes on June 30 to 14 million tonnes in 2015.

Although the company's outstanding debt increased from 23.98 billion yuan on June 30, 2011, to 26.29 billion yuan this year, its net gearing ratio fell from 101.7 per cent to 99.7 per cent.

"There is concern over this company's debt, but the company can make enough money to pay off debt. The company's very leveraged. It may not be my favourite story, but it's a high-quality company with good European equipment," said Dale.

Nine Dragons will pay a final dividend of five fen per share.