- Land: Schweiz
Nachricht vom 22.07.2019 | 07:30
Report on CPH: HY2019 earnings update
EQS Group-News: Research Dynamics / Key word(s): Research Update
This report is published by Research Dynamics, an independent research boutique
Healthy 1H2019 results, with all time high EBIT margins
Paper: The Paper Division reported a slight decline in sales, which dropped 0.8% YoY (-0.6% YoY ex-currency) to CHF 146.9mn. The primary reason for the decline at the top line is the continued structural erosion in the demand for such paper products. Various paper manufacturers have cut their production of magazine paper totalling to 750k tonnes, which should have a positive impact on the prices going forward. According to the company, supply-demand for newsprint and magazine paper was virtually similar at the beginning of the year, which allowed the company to increase some paper prices in early 2019. The divisional EBIT increased significantly by 28.0% YoY to CHF 19.0mn from CHF 14.8mn in 1H/18 and the corresponding margin improved to 12.9% (1H/18:10.0%). The improvement in EBIT margin reflects improved productivity and reduction in cost due to the successful integration of the paper recovery activities of Papierfabrik Utzenstorf, thanks to which more recycled paper can be sourced from Switzerland itself, directly reducing overall transportation costs of the division.
Packaging: Despite the weak growth in pharmaceuticals in the first half of the fiscal, the net sales at the Packaging Division increased by 2.8% YoY (5.9% YoY ex-currency) to a record high of CHF 80.8mn from CHF 78.7mn. Although, the overall packaging market was down during the first half of 2019 but the company's strategic initiatives are starting to bear fruits, e.g., the Suzhou plant has obtained the product licences from the local Chinese regulators. In addition, the new finishing and logistics centre in Brazil is operational since last autumn. Divisional EBIT improved to CHF 10.1mn from CHF 9.6 and corresponding EBIT margin also improved slightly by 20bps to 12.4%. Despite the increased raw material cost, EBIT margin improved due to better product mix of high-value products.
Chemistry: The Chemistry Division reported an increase of 6.3% YoY (4.9% YoY ex-currency) in net sales to CHF 39.7mn in 1H/19. The increase in top line was driven by better utilization of manufacturing facilities along with higher demand for molecular sieves. In addition, the company completed its repositioning of the Chemistry Division and also expanded its marketing and distribution network in Brazil, Bahrain and Czech Republic. The segment reported 10.5% decrease in EBIT to CHF 3.1mn with the corresponding margin narrowed to 7.8% from 9.2% in 1H/18 due to higher other operating income during 1H/18.
Paper: The company expects additional pressure on paper prices as the demand for newspaper and magazine paper is expected to decline further during the second half of the year due to existing overcapacities in the market. Management expects net sales and EBIT margin to remain in-line with the previous year and is keen to keep up the efforts to enhance efficiency and reduce costs further.
Packaging: The current trade war between the US and China along with other economic challenges increases the uncertainty in the business environment and its impact on the pharma markets. The company expects to report a slight increase or similar level of net sales as well as EBIT margin for the full year as compared to the previous year.
Chemistry: Although the current business environment is challenging, management expects stable utilization of production facilities based on healthy order book. The company expects net sales and EBIT margin at similar levels compared to 2018.
In the medium-term, we expect this discount to narrow and the stock to witness a re-rating, considering strong growth prospects in key markets, improved operating efficiencies from the new production facilities and expansion of its Packaging and Chemistry divisions. The Paper Division should benefit from the consolidation and production cut coupled with cost saving initiatives, advanced technology and continued operational improvements. Nevertheless, the business environment with decreasing demand for newsprint paper remains challenging. However, continuing effort to diversify the company itself from a paper manufacturer to a conglomerate should stabilize the revenue stream going forward.
Document title: CPHN_HY19 Results_Research Dynamics_22.7.2019
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