Summary of Xianhe Co., Ltd. Conference Call Company Overview - **Company**: Xianhe Co., Ltd. - **Industry**: Pulp and Paper Key Points Diversification and Raw Material Layout - Xianhe has diversified its raw material sources, including non-eucalyptus fibers such as reed pulp and sugarcane pulp, enhancing its risk resistance and laying a foundation for new product development [2][4] - The Hubei base has reached full production capacity for biological paper using reed pulp, while the Guangxi phase one has been fully operational, with phase two planning for fluff pulp production [2][4] Capacity Expansion Plans - Domestic capacity expansion is progressing steadily, with Guangxi phase two expected to be operational by the end of 2026 and a unique project in Sichuan anticipated to partially launch by the end of 2027 [2][6] - The overseas base in Cambodia is expected to start production by the end of 2026, with considerations for expansion into the Middle East to avoid trade barriers and expand international markets [2][6] Profitability and Market Outlook - Xianhe expects industry price increases in 2026 to improve profitability, with ongoing overseas base construction and cost control measures [2][7] - The company anticipates a recovery in the specialty paper industry, with its leading position expected to yield more pronounced trends compared to peers [3] Investment in Southeast Asia - The investment in Cambodia aims to explore the Southeast Asian market, serving clients in Vietnam and Cambodia, with future plans to assess Indonesia, Thailand, and Malaysia [9][12] - The investment in Cambodia is approximately 500 million RMB, considered a preliminary attempt to establish a production base close to key markets [9] Product Production and Market Demand - The Cambodian base will produce over 10 types of products, including consumer materials and industrial materials, with flexibility to adjust production based on customer needs [10] Competitive Advantages - Chinese companies have strong production capabilities in tobacco-related materials, having overcome technical challenges and aligning with international standards, enhancing competitiveness in global markets [11] Pulp Price Trends - Pulp prices are on a cyclical upward trend, having increased by $50 in September, with domestic prices rising by 200 RMB, driven by rising wood chip costs [13][14] - The average production cost in China is approximately $490 per ton, but rising wood chip prices are pushing costs higher, potentially impacting profit margins [15] Strategic Responses to Market Conditions - Xianhe maintains a stable ratio of self-use to external sales, with approximately 20% of production sold externally to ensure customer relationships and market share [17][18] - The company is prepared to adjust import-export structures and optimize internal resource allocation in response to raw material supply fluctuations [19] Capital Expenditure Plans - Capital expenditures for 2026 are projected at 3 billion RMB, primarily for projects in Sichuan, Hubei, Guangxi phase two, and Cambodia [23] Overall Financial Performance - In 2025, Xianhe's overall costs have decreased, leading to better profit performance, with brand and service quality becoming increasingly important in a challenging market [21][22]