2023

Light Industry & Papermaking: Paper Prices Slightly Drop, While Raw Material Imports Decline

The paperboard sector outperformed the broader market: This week, the paperboard sector rose by 1.8%, while the CSI 300 Index gained 0.85% over the same period, giving the sector a lead of 0.95 percentage points. Among them, the eight key paperboard companies included in the index climbed 2.63%, outpacing the overall market by 1.78 percentage points.
Key Company Updates:
1) Donggang Shares: The People's Bank of China announced that the pilot program for cross-bank electronic cash top-ups using commercial banks' financial IC cards has officially launched, with plans to roll out the initiative nationwide starting in September 2013. The enhanced convenience of electronic cash is expected to boost IC card issuance: (1) Banks will become more proactive in issuing these cards, as the increased ease of using electronic cash will expand its adoption across the board. By partnering with merchants through deposit agreements, banks can also bolster their deposit bases, reaping direct benefits. Meanwhile, the small-amount payment feature of electronic cash builds on standard bank cards, offering expanded services that deepen customer loyalty and attachment to the bank. (2) This development will further promote the widespread adoption of financial IC cards, as the seamless functionality of electronic cash makes these cards more appealing to users, thereby accelerating their broader penetration into the market. In summary, the pilot program for cross-bank electronic cash top-ups enhances both the supply-side incentives for banks and the demand-side appeal for users, creating a positive ripple effect that will significantly drive growth in IC card issuance.
2) Xinghui Car Models: Half-Year Performance Update: Operating revenue reached RMB 1.039 billion, representing a year-on-year increase of 330.8%; net profit attributable to owners of the parent company amounted to RMB 51.65 million, up 32.1% YoY; EPS stood at RMB 0.22. In the first half of the year, the company’s dealership channels experienced slower growth, while expansion in supermarket channels accelerated, contributing significantly to overall performance growth. Additionally, the brand car model project has already achieved 80% of its projected revenue for 2012. The newly added brand car model project, with an additional production capacity of 2.5 million car models, began operations in March and is expected to drive substantial revenue and profit growth in the company’s car model business in 2013. We estimate that the company’s total car model production capacity has now surpassed 17 million units. Based on a capacity utilization rate of 70%, annual car model sales are forecasted to reach approximately 13 million units, reflecting a year-on-year growth of about 10% to 15%.
Paper prices edged slightly lower: This week, coated paper dipped by 0.23%, while prices for all other paper types remained unchanged domestically. Looking at monthly data, coated paper and containerboard prices fell slightly month-on-month in July, whereas prices for other paper categories stayed flat. Notably, coated paper saw a marginal month-on-month decline of 0.05%, while containerboard prices dropped by 1.51% compared to the previous month. Meanwhile, international coated paper prices rose by 1.96% from the previous month, while international newsprint experienced a seasonal decline of 4.79%.
We recommend Donggang Shares, Star Glory Model Cars, Rebecca, Sofia, and Yihua Wood Industry: Among these, Donggang Shares stands out as a company where the smart card business is steadily advancing, offering a margin of valuation safety. Rebecca, meanwhile, is expected to see significant performance improvements in the second half, driven by favorable export trends. Throughout the year, we’ll focus on investments that combine strong growth potential with robust brand equity—specifically recommending Star Glory Model Cars, renowned for its exceptional growth across niche sectors; Sofia, which excels in balancing brand-building initiatives with strategic channel expansion; and Yihua Wood Industry, poised to benefit significantly from the recovering overseas real estate market.
Risk Warning: 1. Macroeconomic recovery falls short of expectations; 2. Fluctuations in raw material prices