Nine Dragons Paper Holdings, the Basic Materials sector company, was revisited by a Wall Street analyst on September 26. Analyst Joy Zhang from Goldman Sachs downgraded the rating on the stock to a Sell and gave it a HK$3.80 price target.
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Joy Zhang has given his Sell rating due to a combination of factors impacting Nine Dragons Paper Holdings. Despite the company reporting a significant year-over-year increase in recurring profit for FY25, this was largely attributed to reduced finance costs and taxes rather than operational improvements. The absence of a final dividend declaration, consistent with the previous year, also reflects a cautious outlook.
Furthermore, Joy Zhang anticipates continued pressure on industry utilization rates, which are expected to remain below 80% for China’s containerboard paper sector. As the temporary benefits from rush exports wane, the unit net profit for Nine Dragons Paper is projected to decline, aligning with broader industry trends. The current stock valuation, trading at a forward price-to-earnings ratio of 14-16 times, is considered expensive compared to the historical average of 8-10 times. These factors collectively underpin the decision to downgrade the stock to a Sell rating, with the 12-month target price maintained at HK$3.8.