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Shenwan said that the import and export volume of pulp had a positive impact on Hengan

China Customs released the import and export data of pulp and paper products in june2010. Among them, the import volume of pulp in June was 950000 tons, with an average unit price of US $823. The month on month growth fell to 3.8 Bazin from 6.6 Bazin in May, which was in line with expectations. Although the price has increased by 80.9 Bazin year on year, domestic consumption has not decreased significantly, because the monthly import volume has only decreased by 31.2 Bazin year on year to ensure the normal use of the experimental machine. The month on month growth rate of import volume soared from -14.3 Bazin in May to 13.1 Bazin. Shenwan believed that the reason was seasonal and economic improvement. Shenwan said that these import data have a positive meaning for HengAn International (01044-hk) and a negative meaning for Nine Dragons Paper (02689-hk)

as a leading downstream enterprise, HengAn's average gross profit margin in the past five years has been around 42 Baxian, which is mainly achieved through the company's brand construction and diversification. Due to fierce competition, the company is relatively passive in increasing the transmission cost to the downstream. Therefore, the recent decline in pulp prices is positive for the company's profits. Due to the overcapacity in the industrial paper industry, Nine Dragons Paper and other companies have to price according to the cost. Therefore, the recent slowdown in the price of waste paper has a negative impact on the company's profits

Shenwan believes that the price growth of pulp, waste paper and products will continue to slow down in the third and fourth quarters of this year, mainly due to China's economic slowdown, especially in real estate related industries. At present, Shenwan holds a cautious and neutral attitude towards the shares of Heng'an and Nine Dragons Paper. For Heng'an, the proportion of the company's pulp in the cost is now about 37 bar cents. At present, the cost is about 650 US dollars a meal. It can be used until January 2010, because the market price of servo electromechanical products is about 4500 yuan/month. If, as expected by Shenwan, the average cost of HengAn's pulp rose by 15 bar cents this year, the impact on the gross profit margin would be about 5.5 bar cents. Although the company can pass on some of it by raising prices and changing the portfolio of deputy directors of gaoruiping Natural Science Foundation, the comprehensive gross profit margin is expected to drop from 46 Baxian in 2009 to 43 Baxian in 2010. Shenwan maintained a neutral rating with a target price of HK $56.1. The catalyst was the product price increase

the main cost of Nine Dragons Paper is waste paper. Historically, the price of waste paper and pulp are closely linked because they are substitutes for each other. As industry leaders, nine paper and Liwen (02314-hk) have pricing power over downstream manufacturers, so their profit growth is highly dependent on cost changes. At present, the company's valuation is 17 times for 06/10e and 13 times for 06/11e. The target price is HK $13.5, corresponding to about 17 times of the market ownership of 06/11e, reaching the valuation of 850000 units. The potential upside is 23 bar cents. However, it still maintained a neutral rating, because the recent weak performance of waste paper prices will restrict the rise of share prices

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