UBS has raised its price target on ND PAPER (02689) to HK$11.82 from HK$10.80, a 9% increase, while maintaining a "Buy" rating. The adjustment follows the company's positive profit alert, which, despite triggering a share price dip, largely aligned with market consensus.

The investment bank notes that after engaging with investors, some mainland Chinese players had initially anticipated earnings roughly 10% higher than the guidance provided, leading them to view the results as slightly disappointing. However, the reported profit figures broadly met market expectations. At the current share price, ND PAPER trades at a projected price-to-earnings ratio of 5.3 times and a price-to-book ratio of 0.5 times for the fiscal year ending June 2027.

UBS has revised its net profit forecast for fiscal 2027 upward by 9% to RMB 5 billion, reflecting a robust outlook and the redemption of perpetual securities. The company's profit alert projects net profit for the full fiscal year ending June 2026 to range between RMB 3.4 billion and RMB 3.6 billion, marking a year-on-year surge of 92% to 104%. The midpoint of RMB 3.5 billion is broadly consistent with both UBS's and the market's estimates.

Notably, ND PAPER's net profit has already doubled from RMB 751 million in fiscal 2024 to RMB 1.767 billion in fiscal 2025, and is poised for another doubling in fiscal 2026 despite declining industry profitability. Management attributes this strong earnings growth to higher sales volumes, as well as a widening gap between product price increases and raw material cost inflation.

UBS highlights that ND PAPER's sales volume and profit margins continue to improve steadily. Supported by robust paper demand, the bank estimates fiscal 2026 paper sales volume will rise 13% year-on-year to 24.4 million tonnes. While the industry's weighted average profitability has declined by approximately RMB 150 per tonne year-on-year, UBS estimates ND PAPER's gross profit per tonne has expanded by about RMB 90, lifting its gross margin by 3 percentage points year-on-year to 14%.

The bank believes the company's vertically integrated pulp-and-paper platform is driving gross margin expansion through lower costs and enhanced pricing power. Additionally, the company redeemed US$400 million in perpetual securities carrying an annual interest rate of 14% in August, which is expected to generate annual savings of approximately RMB 400 million starting from fiscal 2027.