Nine Dragons stock slumps 9pc despite stellar first-half showing
Fulton Mak
Wednesday, February 14, 2007
Despite the company reporting a 69 percent jump in first-half net profit, shares of Nine Dragons Paper (Holdings) (2689), the mainland's largest containerboard maker, fell 9percent Tuesday, swept along by the outflow of funds from the Hong Kong market.
Dongguan-based Nine Dragons - controlled by China's richest woman Cheung Yan - announced its net profit for the six months ended December 31 was 948.1 million yuan (HK$955.2 million), up from 560.2 million yuan the previous year.
Sales volume of paperboard products climbed 23 percent to 1.6 million tonnes, boosting its sales to 4.64 billion yuan, up 23 percent from 3.77 billion yuan.
A dividend of 0.016 yuan per share was declared.
The company attributed its strong first-half performance to rising demand and improving margins, with gross profit margin widening to 26 percent from 22 percent due to optimization of machinery and benefits from economies of scale.
Cheung told a Hong Kong press conference the company plans to increase its annual capacity by 19 percent to 5.35 million tonnes from the existing 4.5 million tonnes by the end of June 2007, followed by another 49 percent hike to 7.75 million tonnes by mid- 2008.
"We aim to raise the annual capacity of our four plants to not less than three million tonnes each" Cheung said.
The company has earmarked 3.5 billion yuan and 5.5 billion yuan for capital investment in fiscal 2007 and 2008, according to chief financial officer Waltery Law.
Nine Dragons operates one plant in Dongguan and another in Taicang, in eastern Jiangsu province, with annual capacity of 2.85 million and 1.65 million tonnes, respectively. The third plant, located in Chongqing, is expected to start operating by mid-2008.
The company expects to decide on its fourth production base, at an undisclosed location in northern China, later this year.
It also plans set up production bases in other Asian countries, along with exploring globally opportunities in the competitive upstream pulp business.
Cheung said Nine Dragons intends to become the world's largest packaging paperboard manufacturer in three years.
Its shares closed Tuesday at HK$15.96, down HK$1.58.