Stock ConnectCHINA SECURITIES (INT’L) RESEARCH
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Equity Research · Company Light Manufacturing
Sitting pretty on solid growth
Strong momentum. C&S Paper, one of the “Big Four” tissue paper
manufacturers in China, has been enjoying brisk growth since 2015, with
operating revenue/net profit gaining 17.34%/30.66%, 28.74%/195.27%
and 19.85%/47.81% in 2015, 2016 and 1H17, respectively.
China tissue paper market. Tissue paper consumption in China grew at a
robust CAGR of 10.53% from 390,000 tons in 1985 to 8.68mn tons in
2016, with the percentage of toilet paper shrinking from above 90% to
around 60% while facial tissue quickly picking up the slack. The Chinese
tissue paper market is currently worth around RMB90bn, and looks set
to grow at a pace of 8%-10% going forward, with non-toilet tissue beating
the broader industry advancing at an estimated 15%-20%.
Looking ahead, C&S Paper’s sustainable growth hinges on four aspects.
(1) Profitability. The company has raised the proportion of its high gross
margin non-toilet tissue products to 53.54%, with its deluxe “Natural
Wood” series selling at a premium of 30-40%. (2) Capacity. On top of a
current capacity of over 500,000 tons, some capacity expansion projects
are to kick off in the near future targeting the high-end segment. (3)
Marketing. A more than 1,000-strong marketing team (many of them
poached from its rival GHY Paper) alongside over 1,700 dealers reach out
to nearly 2,000 Chinese cities. (4) Incentives. Stock incentive plans are
put in place to boost business performance.
Peer comparison. C&S Paper focuses on tissue paper, targeting different
consumer groups with different offerings. The company has created a
retail fortress through strategic partnerships with supermarket chains
such as Walmart, Carrefour and PARKnSHOP. Hengan (1044 HK) is
pursuing a flattened operational model featuring full delegation and
decision-making autonomy. Vinda (3331 HK) is branching out into new
areas such as paper diapers and sanitary towels. GHY Paper, a subsidiary
of APP, one of the world’s largest pulp and paper companies, enjoys
stable raw material supply and strong sales channels throughout 160
countries and regions on the back of its parent’s support.
Investment guidance. C&S Paper provided a guidance of RMB217mn-
272mn for net profit attributable to the parent for the first three quarters
of 2017. We project the company to net a profit of RMB353mn/465mn
for 2017/2018, up 35.6%/31.7% YoY, corresponding to EPS of
RMB0.47/0.61 and 30x/23x PER. The company currently has a valuation
of RMB10.6bn. Maintain Buy.
Risk factors. Pulp price uptrend might carry forward while industry
competition remains intense.
Rating Buy
Issuing analyst:
Steven Liu, CFA, PhD (CE No.: AMO971)
Stevenliu@csci.hk+852 3465 5652
Date: 5 Dec 2017
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中顺洁柔上证指数
C&S Paper
(002511 CH)
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Listed company in-depth
C&S Paper
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Contents
1. C&S Paper at a glance ....... 1
1.1 Shareholding structure ....... 1
1.2 Company history ..... 1
1.3 Robust performance ........... 2
2. Global pulp market and China tissue paper industry ...... 4
2.1 Global pulp supply/demand dynamics ....... 4
2.2 China tissue paper industry: capacity growth slows as non-toilet tissue consumption rises ...... 9
3. C&S Paper: moving upscale and ramping up capacity ... 11
3.1 Profitability improves on higher gross margin products . 11
3.2 Riding the unbleached tissue paper trend ........... 12
3.3 Stepping up marketing and e-commerce . 15
3.4 Ramping up production capacity .. 16
3.5 Stock incentives ..... 17
4. C&S Paper vs. Hengan vs. Vinda vs. GHY Paper . 18
4.1 Headline performance comparison .......... 18
4.2 Revenue breakdown comparison . 20
4.3 Capacity comparison ......... 21
4.4 Strategy comparison ......... 22
5. Investment guidance ....... 23Listed company in-depth
C&S Paper
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1. C&S Paper at a glance
1.1 Shareholding structure
C&S Paper Co., Ltd. (“C&S Paper”), one of the “Big Four” tissue paper producers in China, owns household brands such
as C&S and SUN.
As of mid-2017, C&S Paper had a total share capital of RMB758mn, with Deng Yingzhong, Deng Guanbiao and Deng
Guanjie holding a combined stake of 50.66% in the company. The Deng family has an indirect holding of 29.16% and
20.68% in C&S Paper through Zhongshun Group and C&S Hong Kong Co Limited, respectively.
Figure 1: C&S Paper’s shareholding structure
Source: Wind; company announcement; Research Dept, CSCI
1.2 Company history
C&S Paper floated on Shenzhen Stock Exchange in Nov. 2010, was the first of its kind to go public in China.
The company has set up production subsidiaries in Guangdong, Sichuan, Zhejiang, Hubei and Hebei, and has deepened
and broadened its overseas procurement and financing pipeline by establishing C&S Hong Kong Co Limited.Listed company in-depth
C&S Paper
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Figure 2: C&S Paper’s key milestones
Source: company announcement; Research Dept, CSCI
1.3 Robust performance
C&S Paper had an operating revenue of RMB3.809bn in 2016—up 28.74% YoY, growing at a CAGR of 12.97% from
RMB2.339bn in 2012—alongside RMB260mn of net profit attributable to the parent, up 195.27% YoY with a CAGR of
13.08% from RMB159mn in 2012. The company posted RMB2.123bn in operating revenue and RMB156mn in net profit
attributable to the parent in 1H17, up 19.85% and 47.81% YoY, respectively.
According to the company’s estimates, net profit attributable to the parent for the first three quarters of 2017 falls within
a range of RMB217mn-272mn, demonstrating solid growth momentum.
Figure 3: C&S Paper’s operating revenue and net profit attributable to the parent, hundred million yuan, 2012-1H17
Source: Research Dept, CSCI
C&S Paper’s gross margin steadily climbed from 31.25% in 2012 to 35.92% in 2016, up 3.89 pct YoY, and continued the
uptrend into 1H17, up 1.52 pct YoY to 36.16%.
Affected by higher period expenses, the company’s net profit margins encountered a drop from 2013 to 2014, before
bouncing to 2.98% in 2015, up 0.3 pct YoY, followed by a 3.86 pct leap to 6.84% in 2016 and a 1.40 pct rise to 7.37% in
1H17.
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