【Top 100 Perspective】Self-made pulp, no worries! Nine Dragons Paper's profits surge over 300%

Author: Remote

After years of intense price wars, China’s paper industry has finally moved away from chaotic competition in the “Red Sea” and entered a strong cyclical turning point with improved supply and demand dynamics.

Against this backdrop, leading companies such as Nine Dragons Paper (02689.HK), Lee & Man Paper (02314.HK), and Shanying International (600567.SH) are among the first to benefit. Among them, Nine Dragons Paper, with its deep integration of pulp and paper, delivered an outstanding mid-year (six months ending December 31, 2025) performance report for fiscal year 2026 on February 25, becoming a benchmark in the industry’s recovery wave.

Profit Surged Over Three Times, Cost Advantages Bolster Performance Confidence

Nine Dragons Paper’s mid-year results are highly explosive. According to the financial report, in fiscal year 2026 mid-term, the company achieved revenue of 37.221 billion yuan (RMB), up 11.2% year-over-year; net profit attributable to shareholders soared to 1.966 billion yuan, a 318.8% increase. Basic earnings per share jumped from 0.10 yuan to 0.42 yuan, a 320% increase.

The growth was driven by a dual benefit of rising volume and prices. During the period, paper product sales increased by 8.3% year-over-year to 12.4 million tons, hitting a three-year high for the same period. Amid industry supply contraction, the average selling price increased by 2.7% against the trend, creating a strong combined effect on performance growth. Profitability improved significantly, with gross margin rising from 9.5% to 14.4%, an increase of 4.9 percentage points, and gross profit rising 67.4% year-over-year to 5.347 billion yuan, indicating excellent profit quality.

A key factor behind this outstanding performance is Nine Dragons’ long-standing “pulp and paper integration” strategy. By the end of 2025, the company’s total annual fiber raw material capacity reached 8.2 million tons, including 5.4 million tons of wood pulp, achieving near self-sufficiency in core raw materials. This not only hedges against fluctuations in imported wood pulp prices but also lays a solid foundation for upgrading product structure towards higher-end and differentiated offerings.

Meanwhile, at the 2025 Hong Kong Wealth Management Summit and the 12th “Top 100 Hong Kong Stocks” awards ceremony, Nine Dragons successfully ranked among the “Top 50 Medium-sized Enterprises” in the “Hong Kong Stock 100,” a recognition of its performance and competitive strength in the capital market.

Counteracting Internal Competition + Capacity Expansion, Leading Companies Benefit from Cyclical Opportunities

The domestic paper industry has long been trapped in “price competition,” with overcapacity and thin profit margins as major pain points. However, since 2025, the trend of “counteracting internal competition” has become clearer, with supply-side optimization gradually showing results: most paper mills have actively reduced capacity through shutdowns and maintenance, leading to increased industry concentration and a favorable market environment for leading companies.

In this context, industry leaders like Nine Dragons Paper have initiated a price increase cycle. According to a recent report from Datong Securities, not only did Nine Dragons and other leaders successfully implement price hikes in February, but they also announced plans to raise prices again in March. As demand for core products like white cardboard rebounds after the Spring Festival, the likelihood of further price increases remains high. The report notes that overall paper prices are stable, and with rising pulp inventories and easing costs due to falling prices, profit margins for leading companies are expected to further expand.

Facing this strategic opportunity of industry recovery, Nine Dragons Paper has launched an ambitious capacity expansion plan. The company is advancing pulp and high-end paper capacity projects in Chongqing, Tianjin, Beihai, and Dongguan, with a total planned capacity of 3.2 million tons of pulp. Additionally, 1.9 million tons of white cardboard and cultural paper capacity were fully completed between July and October 2025.

Once all projects are operational, the company’s total annual fiber raw material capacity will increase to 10.7 million tons, including 7.9 million tons of wood pulp, potentially achieving full raw material self-sufficiency. By vertically integrating the pulp supply chain, Nine Dragons can continuously reduce production costs, promote product performance upgrades, and enhance brand premiums, thereby consolidating its long-term core competitiveness.

However, risks from industry cyclical fluctuations should not be overlooked. The demand for paper is highly correlated with macroeconomic conditions, consumer markets, and export trade. If demand recovery falls short of expectations, it could impact price increase implementation; raw material price volatility and policy adjustments may also pose challenges. Additionally, the capital expenditure from capacity expansion projects and the company’s total loans of 73.467 billion yuan place higher demands on financial stability.

Looking ahead, supported by domestic policies to expand internal demand, promote consumption, and the environmental trend of “replacing plastic with paper,” the supply-demand landscape in the paper industry is expected to continue improving. With its cost advantages from pulp-paper integration, high-end product structure, and precise capacity deployment, Nine Dragons is well-positioned to benefit from the industry’s cyclical upswing. However, balancing expansion with risk management and maintaining profitability amid cyclical fluctuations will be key to the company’s long-term development. For investors, the release of industry cycle benefits in this leading company is promising, but potential risks from industry volatility should also be carefully monitored.