SUN PAPER(SZ:002078) Changjiang Securities·2025-07-23 14:58Investment Rating - The industry investment rating is "Positive" and maintained [8] Core Viewpoints - The paper industry is expected to benefit from the government's "anti-involution" initiative, which aims to address excessive competition and promote product quality. The new capacity in the paper industry, which has seen significant growth in recent years, is projected to slow down starting in 2026. This, combined with expectations for commodity prices to return to healthier levels, suggests that the industry may gradually enter an upward cycle, with a focus on the valuation recovery and profit elasticity of leading companies [2][4][8] Summary by Sections Industry Overview - The government has emphasized the need to address "involution" in competition, with a focus on promoting quality and phasing out outdated capacity. The paper industry, which has faced oversupply, is likely to benefit from these broader industry reforms [2][4] Current Market Conditions - The paper industry is currently at a cyclical low, with profitability under pressure. As of Q1 2025, total inventory in the paper industry has decreased compared to Q4 2024, indicating that the industry has not yet entered a passive destocking phase. The price of wood pulp is showing signs of bottoming out, with recent price adjustments indicating a willingness among leading manufacturers to stabilize or increase prices [8] Short-term Outlook - The third quarter is expected to be a pressure test for the industry, with the fourth quarter showing strong improvement potential. Despite the seasonal downturn and new capacity coming online, the price decline for pulp and paper is expected to be limited, and leading companies are likely to manage costs effectively [8] Mid-term Outlook - Supply and demand are expected to gradually balance, with the industry poised for recovery as new capacity growth slows from 2026 onwards. The anticipated return to healthier pricing levels due to the "anti-involution" measures will support this recovery [8] Recommended Companies - The report recommends Sun Paper as a leading company with strong profit margins and a history of resilience through cyclical downturns. Other notable companies include Nine Dragons Paper and Bohui Paper, which also show significant profit elasticity potential. Special paper leaders like Xianhe Co. and Huawang Technology are highlighted for their stable demand and cost advantages [8]