Result first take: 1HFY22 earnings result in line with a drop of 30.6% yoy due to worsened economic outlook
What’s new
- Revenue increased by 11.6% yoy to RMB34,471mn, thanks to the strong performance on coregulated medium
- Sales volume remained relatively stable and reached 8.4mn tonnes, a drop of 1.6% yoy.
- Gross profit margin decreased to 13.6% (in contrast to 20.9% same period last year) as the company was not able to raise ASP faster than the rise in domestic wastepaper price.
- Administrative expense, notably, increased by 22.7% yoy mainly due to additional management and administrative costs incurred to support the capacity expansion projects
- Effective tax rate reduced to 2.8% due to certain sales of recycled products qualified for the incentive tax arrangement
- Net profit dropped 30.6% yoy to RMB2,795mn, in line with the profit warning announced in January.
- Net profit per tonne is equal to RMB328.4 per tonne (prev. period RMB456)
- The board announced an interim dividend per share of HK9.8 cents, with a higher payout ratio of 13.6% (prev. 11.7%)
Our view
- NDP’s share price has dropped 31.5% since last year Oct 2021 following movement of the drop of domestic wastepaper price
- As the demand slowed amid slower economic activities, NDP was not able to further hike ASP in November and December 2021 and in some case, cut selling price to sustain the target volume
- Share price remained at the current level since the profit warning announcement, suggests that the current share price has already digested the profit warning.
- However, as the paper industry is moving into low season in 2HFY2022, NDP’s share price is likely to have limited upside in short term.
- As per our economists anticipate further cut in interest rate in China, we see the current government stimulus measures to help boost the economy will be a positive catalyst to the company in 2022.
- The company is trading at 4.6x FY22F PE, which is below -1std of its four years average. It is also close to the previous low in July 2020 and we reckon the negatives are mostly priced in.
- We currently recommend BUY with TP under review.