Century Paper & Board (CEPB)
Pakistan’s Leading Paper Board Supplier
Pakistan Equity | Paper & Board
REP-057
Report completed on December 8,2017
Prices as of December 6,2017
Rai Omar Basharat AC
Tel: +9221-35303330, Ext: 138
Topline Securities, Pakistan
Best Local Brokerage HouseBrokers Poll 2011, 2012, 2013, 2014 & 2016
Best Local Brokerage House 2015 & 2016
Pakistan’s Leading Paper Board Supplier
www.jamapunji.pk
Executive Summary� Century paper & board (CEPB) is Pakistan’s largest coated board producer and
preferred supplier for printing and packaging industry. It is expected to benefit
from 1) economic growth and growth in fast moving consumer goods (FMCG)
sector (coated boards segment usually grows at twice the rate of GDP), 2)
operational efficiency through better utilization of cheaper coal based power
generation, and 3) imposition of anti-dumping duty. The company has been able to
improve its market share in the last two years owing to improved market dynamics
and availability of efficient energy mix.
� CEPB’s main product is coated paper boards, which it supplies to
convertors, printers and packaging companies which then use paper boards to
KATS Code CEPB
Bloomberg Code CEPB PA
Reuters Code CENP.KA
Market Price Rs68.23
Market Cap Rs10.0bn/US$95.0mn
Free float Market Cap Rs3.5bn/US$33.3mn
1-Yr Avg. Daily Vol. (mn) 0.2
1-Yr Avg. Daily Val. (mn) Rs19.1/US$0.2
1-Yr High/ Low Rs116.2/57.0
Estimated free float 35%
Not Rated
2Century Paper & Board (CEPB)
convertors, printers and packaging companies which then use paper boards to
provide high quality printed packaging to end users in FMCG and other sectors. The
company has total installed capacity of 240k tons per annum out of which 170k (or
71%) is of coated boards. The company also enjoys better product margin in coated
board segment due to its reliability and quality of its products and lesser domestic
competition in this segment.
� The company predominately competes with international (imported) products and
is therefore immune to rupee depreciation to a certain extent as the imported
products will also become expensive. Though CEPB’s 50% of raw materials are
locally procured, impact of currency devaluation on the company’s bottom-line is
limited as it can pass on some of the cost to its customers.
Share outstanding (mn) 147.02
Index weight 0.12%
Source: PSX, Topline Research
CEPB vs. KSE-100 Index
-10%
10%
30%
50%
70%
90%
110%
Dec-1
6
Feb-1
7
Apr-
17
Jun-1
7
Aug-1
7
Oct-
17
Dec-1
7
CEPB KSE-100
Executive Summary� Besides coated boards, which constitute 70% of company’s total sales volume (coated board & corrugated boxes), the company
deals in uncoated paper board whose share in sales mix is around 10%. Machine Finished (MF) and Machine Glazed (MG) paper
share is around 8% and corrugated boxes share is around 12%. The company is capable to handle large continuous orders for
different types of boxes to serve multifarious sectors such as home appliances and dairy products to name few.
� CEPB has diversified captive power generation capacity of 48MW. 18MW is coal fired, 12MW is dual fired (gas & furnace
oil), 18MW (furnace oil and diesel). This allows the company to use the most cost efficient energy mix and ensure un-interrupted
operations. The company also maintains connection to national grid (WAPDA).
� Moreover the investors (of ordinary shares) going forward can expect dividend payout to increase due to improving cash flows.
The company in FY17 also has paid off major portion of cumulative dividend on its preference share.
� CEPB has also announced that it will be adding 130k tons capacity to its existing coated paper board plant, which will take total
3Century Paper & Board (CEPB)
� CEPB has also announced that it will be adding 130k tons capacity to its existing coated paper board plant, which will take total
coated paper board capacity to 300k tons. For this, capital expenditure will be around Rs13bn and the company is looking at
various options to finance it with combination of debt and equity. The planned expansion will allow the company to increase its
market share from current 40% to around 70% in this growing and higher margin segment.
CEPB: Key Numbers
FY13A FY14A FY15A FY16A FY17A
EPS 5.3 3.5 -1.9 1.8 3.7
Earnings Growth 279% -35% -155% NM 108%
PE at Rs68.23 12.9 19.5 NM 37.9 18.4
Dividend Yield - - - - -
ROE 16% 11% -0.4% 6% 11%
PBV 1.9 2.1 2.2 2.0 2.1
Source: Company Accounts, Topline Research
Rising consumption & FMCG sales to Boost Demand
� Per capita consumption of paper & board in Pakistan is ~7kgs compared to India with consumption of ~8kgs and
Sri-Lanka with consumption of ~22kg. As the economy grows and consumers’ disposable incomes rises, paper &
board consumption will also rise simultaneously. Coated board segment generally grows at twice the rate of GDP
as the coated board segment is directly linked to sales of FMCG sector, as per channel checks. To highlight, sales
of consumer staples in Pakistan has grown at a 5-year (2012-16) CAGR of 14%, based on our sample of consumer
firms.
� The rising trend of urbanization in Pakistan coupled with growing middle class, proliferation of shopping malls,
supermarkets and online shopping are changing consumer preference and are driving demand of paper
packaging in Pakistan.
4Century Paper & Board (CEPB)
� Pakistan has one of the highest consumption to GDP ratio, which stood at 92% in FY17. This has improved over
time as consumption to GDP ratio of Pakistan in FY12 stood at 88%.
� Rising urbanization also bodes well for growth of the sector as urban population now constitutes around 36% of
total population as of 2017 census as compared to 32% according to 1998 census.
� As per Aurora (Pakistan's leading advertising, marketing and media magazine), E-commerce industry of Pakistan
is expected to cross US$1bn by 2020 from the current US$120mn.
� Rising GDP per capita is another important barometer to gauge the rising disposable income and potential to
predict future demand. Pakistan’s GDP per capita is expected to grow from US$1,630 in FY17 to US$1,766 in FY20
at CAGR of 2% .
Rising consumption & FMCG sales to Boost Demand
� Changing demographics is forcing the traditional manufacturer of consumer goods to go for higher quality coated
paper board packaging as it allows for higher quality printing to attract younger consumers.
� The uncoated paper board consumption is going through secular decline (it is going out of fashion with goods
producers) as good quality printing cannot be done on un-coated boards and consumers find them un-attractive.
This market is increasingly being replaced by coated boards.
Difference Between Un-Coated Paper & Coated Paper
Parameter Un- Coated Paper Coated Paper
Surface Rough Smooth Surface Rough Smooth
Colour Cream White
Bulk High Low
Absorbency High Low
Source: Peppermint Print UK
5Century Paper & Board (CEPB)
Paper Board Sector Overview
� The domestic paper & board industry has attained capacities and capabilities to produce all major Paper &
Paperboard products leaving small room for imports. More than 70 % of mills are located in Punjab province,
20% are in Sindh province and 10% are in Khyber Pakhunkhwa province.
� Total consumption of paper & board in Pakistan as per industry sources is around 1.7mn tons out of which 35%
is imported.
� Total domestic production of paper & board in Pakistan currently stands at 1.1 mn tons in FY17, which includes
production of all kinds of paper & board such as coated and uncoated paper boards, machine finished / machineproduction of all kinds of paper & board such as coated and uncoated paper boards, machine finished / machine
glazed paper, corrugated boxes and other packaging material.
� According to Pakistan Institute of Trade & Development, there are around 6 major players in the industry
including Bulleh Shah packaging (wholly owned subsidiary of Packages Ltd) Century Paper & Board Mills, Flying
Group of Industries, Premier Paper Mills and Roshan Packages.
� The industry comprises of 17 players in formal sector and numerous other players in un-organized sector. CEPB’s
current market share stands at around 35% whereas Bulleh Shah packaging is the second largest player with total
share of around 34% in paper & board industry.
6Century Paper & Board (CEPB)
CEPB to benefit from imposition of Anti Dumping Duty
� CEPB moved two applications in Dec 2015 to National Tariff Commission (NTC) for Anti-Dumping Duty (ADD)
investigations for its major products (Coated Duplex Board-Grey Back & Coated Bleached Board) for providing
level playing field to the domestic industry. In its investigation, NTC established that the domestic industry
suffered material injury on account of increase in volume of dumped imports, lower prices, decline in
production, sales, market share & profitability and ability to raise capital.
� Resultantly during 3rd and 4th quarter of FY17, NTC announced preliminary ADDs on both Coated Duplex Board-
Grey Back & Coated Bleached Board. On completion of investigation process, NTC imposed final ADD on Coated
Duplex Board-Grey Back in Jul 2017 with duties of 18.57%, 16.22% and 14.98% on products being imported from
China, Indonesia and South Korea, respectively.
� Moreover, practically the announced ADD is not applicable on major importers due to litigation as importers
have filed review petitions in appellate tribunal to use their right as per relevant law. The company is however
optimistic for positive outcome based on merit of both cases.
� After final determination of duties on Coated Duplex Board-Grey Back, CEPB was able to raise prices by around
6% with effect from Aug , 2017. Though CEPB has managed to strengthen its market share in the last two years
owing to improved market dynamics, favorable outcome of ADDs will further support the company’s positioning.
7Century Paper & Board (CEPB)
Coated Paper Board and its market
� Coated paper board total market size is 400k tons in which CEPB holds ~40% market share. This segment
accounts for 70% of CEPB’s total sales volume. The company faces competition mainly from imports in this
segment.
� Coated paper board starts off life as uncoated. It is then coated with china clay liquid, that fills the tiny pours
and crevices in the fibers of the base paper to give it a flat uniform surface. Different levels of rollers and
smoothing blades are then used to create the different coated finishes of matt, silk or gloss.
� The coated paper board (grey-back and bleached board) is usually calendared on one side, which provides a
white and smooth surface suitable for offset printing. The above coated board is a key material for the
production of packaging boxes. It is used in folding cartons, indirect-contact food boxes, toy boxes, soap and
8Century Paper & Board (CEPB)
production of packaging boxes. It is used in folding cartons, indirect-contact food boxes, toy boxes, soap and
toothpaste packaging, as well as posters.
� The company product mix includes a wide range of multi-ply and one side clay coated packaging boards. The
company produces them in grammage range of 205 – 400 (g/m2).
Uncoated Paper Boards
� Uncoated paper boards is facing a declining market size in light of increased usage of coated boards. Uncoated
paper boards account for 10% of CEPB’s sales.
� Uncoated paper boards tend to feel rougher than coated papers and have a more tactile feel. Printed colors look
dull on them.
� The company produces un-coated multi layered boards to meet folding cartons needs of various consumer and
industrial products that require basic printing. The company produces them in grammage range of 125 – 350
(g/m2).
� The above usually have 3 layers comprising of top, middle and bottom layers. The top layer is composed on virgin
9Century Paper & Board (CEPB)
� The above usually have 3 layers comprising of top, middle and bottom layers. The top layer is composed on virgin
fiber, while middle layer has recycled paper and bottom layer uses paper from wheat and bagasse pulp.
Machine Finished / Machine Glazed Paper
� Machine finished (MF) writing & printing papers is produced on papermaking machines and is smooth on both sides.
� It cover the needs of publishing, exercise books, computer stationery, photo copying, ink jet/laser printing and general
printing market segments. The company produces MF papers in the range of 55 – 150 (g/m2) and supplies the paper
directly to publishing houses.
� Machine Glazed (MG) papers is an uncoated paper with shiny appearance on one side and a slightly rough surface on the
other side. It combines high tensile strength properties of Kraft paper together with smoothness and shine for superior
printability.
� The company’s range meets the needs of foil/poly lamination as well as wrapping etc. The company produces MG in
range of 22 – 70 (g/m2) and supplies the paper directly to publishing houses.
10Century Paper & Board (CEPB)
range of 22 – 70 (g/m2) and supplies the paper directly to publishing houses.
� CEPB faces competition in this segment from organized/unorganized sector and commands a small market share. This
accounts for only 8% of company’s sales volume.
Corrugated Boxes & its Market
� Corrugated fiberboard is a material consisting of a fluted corrugated sheet and one or two flat linerboards. It is made on
flute lamination machines or corrugators and is used in the manufacture of shipping containers and corrugated boxes.
� The company has corrugation facility capable of an output in excess of 30mn M² sheets and 60mn of corrugated
containers of various sizes and weights, with up to 3-colour printing. Total installed capacity of Corrugated Boxes stands
at 30k tons. CEPB faces competition from Bulleh Shah packaging and Roshan Packages that has installed capacity of 85k
tons and 60k tons, respectively. The market is fragmented as there are other large number of players in the unorganized
sector.
� The company is capable to produce special and large size cartons for home appliances (Refrigerators, Air conditioners
etc.) The company supplies corrugated cartons directly to end consumers. Moreover it is the only company in the
country, which is producing and selling tobacco storage cartons.
11Century Paper & Board (CEPB)
country, which is producing and selling tobacco storage cartons.
� Like MF/MG Paper, CEPB maintains a small market share in this segment and this segment accounts for only 12% of its
sales volume.
Financial Performance
� CEPB witnessed muted sales growth during FY13-15 due to lower volumetric sales on the back of cheaper imports. However,
during FY16-17, revenues grew on avg. by 8% thanks to improved market dynamics that led to higher sales volumes.
� Higher capacity utilization in coated board of the company, which clocked in at 91% in FY17, led to increase in volumetric sales,
where production clocked in at 155k tons per annum.
� Though the company’s gross margins suffered during FY14-15 owing to lower volumetric sales (cheaper imports affected both
plant utilization and the company’s ability to pass on any hike in input costs) and energy crisis (non-availability of gas), switch to
efficient fuel mix, uninterrupted gas supply and improved market dynamics bolstered margins during FY16-FY17.
� Currency devaluation is a not a major risk for company as CEPB’s margins may not come under significant pressure post
12Century Paper & Board (CEPB)
� Currency devaluation is a not a major risk for company as CEPB’s margins may not come under significant pressure post
devaluation as CEPB will be able to pass on some of the impact, as per channel checks.
� The company sales growth and profitability in future is set to grow, due to its planned 130K addition to its coated board capacity
as the company is already a market leader in this segment and the expansion will further consolidate its position.
CEPB Current and Post Expansion Capacity (tons)
Capacity Production Utilization Post expansion capacity
Coated Board 170,000 155,000 91% 300,000
Un-Coated Board 18,500 16,000 86% 18,500
MG & MF 21,500 15,000 70% 21,500
Corrugated Boxes 30,000 28,500 95% 30,000
Total 240,000 214,500 79% 370,000
Source: Company Accounts, Topline Securities
Century paper & board (CEPB) – Financial Snapshot
Income Statement Key Ratios
Rsmn FY13A FY14A FY15A FY16A FY17A FY13A FY14A FY15A FY16A FY17A
Net sales 14,236 14,668 13,186 13,389 15,401 Key metrics:
Gross profit 2,547 2,021 878 1,267 1,792 Paper & Board (Capacity in tons) 240,000 240,000 240,000 240,000 240,000
Distribution expense 111 140 113 114 115 Paper & board conversion (Capacity) 30,000 30,000 30,000 30,000 30,000
Admin expense 310 351 359 379 375 Paper & board (Utilization) 77% 73% 66% 75% 89%
Other operating charges 117 107 75 46 104 Paper & board conversion (Utilization) 81% 87% 74% 79% 82%
Other Income 91 106 68 64 114 DuPont Analysis:
Operating profit 2,100 1,529 400 792 1,311 Tax Burden 0.7x 0.7x 1.2x 0.7x 0.7x
Other charges 117 107 75 46 104 Interest Burden 0.7x 0.6x NM 0.6x 0.7x
Finance Cost 693 616 576 356 407 EBIT Margin 15% 10% 3% 6% 9%
Profit before tax 1,407 914 -176 436 904 Total Asset Turnover 1.1x 1.1x 1.0x 0.9x 1.0x
Profit After tax 929 630 -205 322 602 Financial Leverage 2.3x 2.3x 2.4x 2.6x 2.6x
13Century Paper & Board (CEPB)
Profit After tax 929 630 -205 322 602 Financial Leverage 2.3x 2.3x 2.4x 2.6x 2.6x
EPS (Rs) 5.3 3.5 -1.9 1.8 3.7 ROE 16% 11% NM 6% 10%
Source: Company Accounts, Topline Research
Others:
Gross Margin 18% 14% 7% 9% 12%
Balance Sheet Net Margin 7% 4% NM 2% 4%
Rsmn FY13A FY14A FY15A FY16A FY17A Pretax margin 10% 6% NM 3% 6%
Non-Current Assets 8,875 8,349 9,426 10,093 9,733 Effective Tax Rate 34% 31% NM 26% 0%
Current Assets 4,400 4,830 4,682 4,888 5,704 Return on Assets 7% 5% NM 2% 4%
Total Assets 13,275 13,179 14,108 14,981 15,437 Return on Equity 21% 14% NM 7% 14%
Debt to total assets 56% 56% 61% 61% 63%
Equity 5,819 5,745 5,519 5,851 5,713 Debt to Equity 43% 46% 45% 42% 142%
Non-Current Liabilities 4,691 4,008 4,728 4,573 3,922 Interest Coverage 0.3x 0.4x 1.4x 0.4x 0.3x
Current Liabilities 2,765 3,426 3,861 4,557 5,802 Current Ratio 1.6x 1.4x 1.2x 1.1x 1.0x
Total Equity & Liabilities 13,275 13,179 14,108 14,981 15,437 Quick Ratio 0.9x 0.7x 0.7x 0.7x 0.6x
Source: Company Accounts, Topline Research Source: Company Accounts, Topline Research
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Century Paper & Board (CEPB)
