China’s economy is continuing to decline, with insufficient demand impacting various industries. On Thursday (20th), leading paper company Chenming Paper Industry halted trading for a day and is set to be labeled as ST. Additionally, the company’s estimated net profit for 2024 is expected to incur losses of 6.5 to 7.5 billion yuan, an increase of 4 to 5 times compared to the previous year.
On the morning of February 20th, Hong Kong-listed Chenming Paper Industry (1812.HK) dropped by over 15% to 0.89 Hong Kong dollars, marking a more than 9-year low since the end of October 2015.
On the evening of February 19th, Chenming Paper Industry announced that due to their production base undergoing maintenance shutdown for over 3 months and unable to resume production on a large scale, the company’s stock trading has triggered other risk alert situations. As of the 19th, the Huanggang base of the company was operating normally, with partial production lines at the Shouguang base resuming production, accounting for 23.23% of the restored capacity, while other production bases were still undergoing maintenance.
According to the announcement, on February 20th, Chenming Paper Industry’s A shares and B shares were suspended from trading for a day. Starting from the market opening on February 21st, other risk alerts were implemented, changing the A share securities abbreviation from “Chenming Paper Industry” to “ST Chenming”, with the securities code being “000488”; and the B share securities abbreviation from “Chenming B” to “ST Chenming B”, with the securities code being “200488”. After implementing other risk alerts, the daily limit for the stock price fluctuations of the company’s A shares and B shares changed from 10% to 5%.
The so-called “ST stocks” refer to “Special Treatment” stocks, a policy targeting stocks that exhibit abnormal financial conditions or other anomalies.
With the downturn of the Chinese economy, Chenming Paper Industry has gradually fallen into a crisis over the past two years, with profits declining year after year, leading to the first annual profit loss in 2023.
Based on financial reports, from 2021 to 2023, Chenming Paper Industry’s operating income was 33.02 billion yuan, 32.004 billion yuan, and 26.609 billion yuan respectively in Chinese currency, showing a downward trend year by year; and the net profits were 2.09 billion yuan, 0.317 billion yuan, and -1.327 billion yuan, resulting in the first annual loss.
In 2024, Chenming Paper Industry’s estimated net profit is expected to incur losses of 6.5 to 7.5 billion yuan, with a scale of losses expanding by 407.30% to 485.35% year-on-year.
Furthermore, since the financial scandal of last November, Chenming Paper Industry has been embroiled in lawsuits and asset seizures, with the total amount involved exceeding 2.6 billion yuan.
Financial media outlet “Chenrui Financial” analysis indicates that Chenming Paper Industry’s “ST” event is not only an outbreak of corporate crisis but also a microcosm of the cyclic adjustment of the industry. The future of the company depends on three factors: whether it can achieve large-scale production resumption in the short term to stabilize cash flow, whether it can alleviate debt pressure through the introduction of strategic investors, and whether the industry’s supply and demand can return to balance. If these conditions are not met, Chenming Paper Industry may become another giant to fall in the current winter of the paper industry.
Chenming Paper Industry, a leading A-share paper company in the industry, mainly engages in the production and sales of mechanical paper and board, paper raw materials, paper machinery, power, and heat. Its main products include cultural paper, white board paper, copperplate paper, household paper, electrostatic copy paper, and thermal paper.
Chenming Paper Industry has multiple production bases nationwide, with total assets close to a trillion yuan and an annual pulp and paper production capacity of over 11 million tons.