CPH Chemie + Papier : 1HFY2023 Results update 24 July 2023

This report has been issued for information purposes only and is not intended to constitute investment advice. It is based on estimates and forecasts of third parties regarding revenues, earnings and business developments. Such estimates and forecasts cannot be independently verified by reason of the subjective character. CPH Chemie + Papier Holding AG gives no guarantee, representation or warranty and is not responsible or liable as to its accuracy and completeness.

This report is not a prospectus within the meaning of art. 652a CO or art. 27 et seq. of the SIX Listing Rules. This document is neither an advice on investment, nor a recommendation or invitation for purchasing, holding or selling any securities, money market instruments or derivatives and no investment decision should be based on this report. This report speaks as of its date. Neither CPH Chemie + Papier Holding AG nor Dynamics Group AG assume any responsibility to up-date the report.

CPH Chemie + Papier Holding AG

Switzerland | Industrial Goods & Services

1HFY2023 Results update

24 July 2023

Company Data

Price:	CHF 87.00
Market Cap:	CHF 522.0mn
Free Float:	11.1%
No. of shares:	6.0mn
Avg. traded volume (30 day):	839.0
Bloomberg:	CPHN SW
Reuters:	CPHN-EB
ISIN:	CH0001624714

Source: SIX Swiss Exchange and Bloomberg

Share Price Development

160.0
140.0
120.0
100.0
80.0
60.0
Jul-22	Sep-22	Nov-22	Jan-23	Mar-23	May-23	Jul-23
			CPH	SPI

Source: Bloomberg

Key Financial Data

	2021	2022	2023E	2024E
Sales	496.7	725.4	638.8	640.4
EBITDA %	5.2%	18.1%	14.8%	11.5%
EBIT %	(0.5%)	15.5%	11.7%	8.3%
Net Margin %	(30.5%)	13.9%	12.2%	7.0%
Basic EPS	(25.3)	16.8	12.99	7.48
Diluted EPS	(25.3)	16.8	12.99	7.48
DPS	1.30	4.5	4.20	3.60
Equity Ratio %	55.2%	59.8%	74.8%	75.6%
Capex	(19.4)	(29.6)	(20.3)	(28.7)
P/Sales	0.9x	0.6x	0.8x	0.8x
P/E	NM	4.5x	6.7x	11.6x
EV/EBITDA	17.1x	3.4x	4.7x	6.1x

Source: Research Dynamics, Company data

Next Events

Baader Investment Conference	19 Sep 2023
Investor Day	26 Sep 2023
ZKB Swiss Conference	01 Nov 2023

Analysts

Doris Rudischhauser [e-mail]

Alexandre Müller [e-mail]

Tel: [phone]

www.researchdynamics.ch

Mixed performance amid challenging market

Profitability remains intact

In 1HFY2023, CPH's net sales declined 7.8% year-on-year (YoY) to CHF 332.0mn. In constant currency (CC) net sales declined 3.9% YoY. This decrease was primarily impacted by a significant downturn in the Paper division, which saw a decline of 24.5% YoY. Nevertheless, the Packaging and Chemistry divisions' growth partially offset the decline. The Packaging division witnessed a growth of 14.4% YoY, while the Chemistry division showed a more modest increase of 1.9% YoY. The demand trends varied among the three business divisions. The Packaging division's production facilities were well-utilised, but the Chemistry division experienced increased margin pressures, and the Paper division faced a steep decline in demand. Overall, the divisions had mixed performance.

In 1HFY2023, raw material prices showed diverse trends. Paper prices recovered but remained at a high level. The plastics market, specifically PVC, experienced reduced demand due to the construction sector's activity, leading to a decline in prices. Despite a general decline in energy prices, energy costs were higher during this period. Despite the rise in raw material and energy costs, the company's EBITDA remained steady at CHF 62.0mn (1HFY2022: CHF 62.0mn), and the corresponding margin expanded to 18.7% (1HFY2022: 17.1%).

In anticipation of supply shortages, pharmaceutical manufacturers boosted their safety stocks of raw materials and ordered packaging films well in advance during 2022. Consequently, the Packaging division witnessed record-breaking order volumes in 1HFY2023. This enabled the company to record growth in EBIT to CHF 53.0mn (1HFY2022: CHF 52.0mn), and the corresponding margin expanded to 16.0% (1HFY2022: 14.4%). The net result of the company attributable to common shareholders improved to CHF 61.0mn (1HFY2022: CHF 47.0mn). The significant increase is largely due to the land sales reported at the Full-Reuenthal operating site.

Segmental performance

Paper: In 1HFY2023, net sales of the Paper division decreased by 24.5% (in CC: -21.0%) YoY to CHF 142.0mn. During this period, there was a significant decrease in demand for newsprint (-25.0%) and coated magazine paper (nearly -30.0%) in Western Europe. The increasing impact of digitalisation led to a more pronounced structural shift, resulting in a decline in the printing of newspapers and magazines. Additionally, customers opted to reduce their paper stocks in anticipation of potential energy shortages during the autumn season. Consequently, the paper manufacturers in the region experienced underutilisation of their capacities in the first half of the year. In response to the challenging market conditions, some competitors in the Paper division announced the closure of certain facilities. however, more than these measures are needed to restore a more favourable balance between supply and demand. As a result, the division's EBIT declined by 24.9% to CHF 26.0mn (1HFY2022: CHF 34.0mn), and the corresponding margin came in at 18.0% (1HFY2022: 18.1%).

Packaging: Net sales were up 14.4% (in CC: +19.1%) YoY to CHF 133.0mn (1HFY2022: CHF 116.0mn), driven by a substantial increase in sales volumes. All production facilities within the division experienced robust utilisation and received substantial order volumes. Despite facing elevated transportation and raw material expenses during 1HFY2023, the company successfully passed on much of these increased costs to its customers. Consequently, the division achieved an EBIT of CHF 21.0mn (1HFY2022: CHF 11.0mn), resulting in an expanded corresponding margin of 15.6% (1HFY2022: 9.7%).

Chemistry: Net sales increased 1.9% (in CC: +6.3%) YoY to CHF 58.0mn, driven by improved demand in most product segments as facilities operated at high-capacity utilisations. The division's molecular sieve facilities were well-utilised for ethanol, natural gas, and industrial gas purification. Deuterated products for laboratory analyses and OLED displays had strong demand. However, medical sector demand declined from pandemic levels, and weaker construction activity reduced the need for molecular sieve powders in window manufacturing. The division also grappled with higher raw material costs, notably lithium, but remained adaptive and innovative to meet market demands; the division's EBIT came in at CHF 7.0mn, (1HFY2022: 7.0mn) and the corresponding margin contracted to 11.9% (1HFY2022: 13.0%).

Important disclosures are on the last page of this report. CPH Chemie + Papier Holding AG is a research client of Research Dynamics. The equity research reports are prepared for information purposes only.

CPH

Switzerland | Industrial Goods & Services

2

Outlook for FY2023e

The near-termmacro-economic uncertainties like the impact of energy price developments, supply chain disruptions and ramifications of interest rate hikes by central banks in response to rising inflation resulted in management having a cautious outlook for FY2023e.

Group: Concrete divisional developments will depend on the unfolding of macroeconomic uncertainties in the key markets and time lags in passing the higher raw material costs to the market. Management expects FY2023e sales to be lower than in FY2022 and an EBIT in the higher double-digit millions. The absence of any unforeseen circumstances, the net result is expected in a similar range.

Paper: Raw material prices are expected to remain high levels in FY2023e. At the same time, elevated paper prices may not sustain and could experience pressure in FY2023e. As demand for newspaper and magazine printing paper in Europe already declined by 15.0% and ~30.0%, respectively, in 1HFY2023, the Paper division expects demand to be lower for the year as a whole, resulting in substantially lower net sales and EBIT compared to FY2022.

Packaging: The global market for blister packaging is expected to grow by 3-6% over the next years. The division aims to further gain market shares; thus, we expect net sales to grow at a rate of around 2.0% in FY2023e. Moreover, with plans to pass on the raw materials costs to the market, the EBIT margin in FY2023e is expected to be ~14.0%.

Chemistry: Net sales are expected to increase in FY2023e, and EBIT for the year is likely to be broadly in line with its FY2022 level. The division's planned investment of around CHF 14.0mn in infrastructure investments at the Chinese operating site and efficiency enhancements at the U.S. operation are currently in progress.

Valuation and conclusion

We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 97.8 per share, same as the previous target price (CHF 97.8) and implies an upside of 12.4% from current levels. For relative valuation, since the Group operates in three entirely different divisions, we compare CPH's divisions with different sets of relevant industry peers. We have employed three parameters - EV/EBITDA, P/S, and P/E - to analyse the relative valuation of the Group. CPH currently trades at an EV/EBITDA multiple of 5.3x (FY2023e), a significant 39.0% discount to the weighted average multiple of division peers.

The global economy is expected to recover gradually, with the IMF slashing 2023e to 2.9% and rising 2024e by 3.1%. In the short term, we believe ongoing inflationary headwinds and prospects of a slowdown may weigh on the company's prospects. On a positive note, the company could pass on the higher raw material and energy costs. In the same line, the current shortages of raw materials like recovered paper are expected to stay on a high level over the 2HFY2023e with the respective impact on costs. Although over the past decade the performance of the Paper Division was demanding, the supply side squeeze should keep the division's profitability at an acceptable level. Moreover, the operating results of the Packaging and Chemistry divisions - both benefitting from somewhat higher visibility - are expected to remain resilient. A better bottom line at Group level and the cost optimisation efforts are expected to result in a healthy performance of the company's stock price.

CPH

Switzerland | Industrial Goods & Services

3

Exhibit 1: CPH - Comparison with division peers

	Company		EV/EBITDA			P/S			P/E
	3 year			3 year			3 year
		average	CY2023E	CY2024E	average	CY2023E	CY2024E	average	CY2023E	CY2024E
	CPH Chemie & Paper	5.2x	5.3x	5.0x	1.2x	0.7x	0.7x	15.4x	7.0x	8.6x
	Paper peers:
	Holmen	NA	10.4x	11.5x	NA	2.8x	2.9x	NA	17.0x	19.2x
	Stora Enso	7.9x	8.6x	6.7x	1.0x	0.8x	0.8x	13.7x	18.3x	12.3x
	Altri Sgps	7.1x	7.4x	7.1x	1.7x	1.1x	1.1x	10.0x	14.0x	12.4x
	Metsa Board	11.4x	7.5x	6.5x	1.2x	1.2x	1.0x	14.0x	12.8x	10.4x
	Upm-Kymmene	8.5x	9.6x	7.9x	1.4x	1.3x	1.3x	12.8x	15.8x	11.8x
	Norske Skogindustrier	10.8x	NA	NA	0.0x	NA	NA	2.8x	NA	NA
	Cropper (James)	16.8x	0.1x	0.1x	1.3x	0.0x	0.0x	35.3x	19.7x	12.2x
	Oji Holdings Corp	8.4x	NA	NA	0.4x	0.3x	0.3x	13.5x	7.8x	6.8x
	Chemistry peers:
	Honeywell Int.	13.0x	15.8x	15.0x	2.8x	3.7x	3.6x	21.0x	22.7x	20.6x
	Clariant	10.9x	NA	NA	1.4x	NA	NA	33.0x	NA	NA
	Arkema	6.1x	6.1x	5.6x	0.8x	0.7x	0.7x	12.6x	10.4x	8.9x
	Chemours Co/The	14.4x	NA	NA	2.4x	NA	NA	30.3x	NA	NA
	Packaging peers:
	Macfarlane Group Plc	10.5x	0.1x	0.1x	0.7x	0.0x	0.0x	16.7x	9.1x	8.7x
	Gerresheimer Ag	10.5x	11.0x	9.4x	1.6x	1.8x	1.6x	25.2x	22.1x	18.4x
	West Pharmaceutical Services	24.7x	33.0x	29.0x	5.3x	9.4x	8.6x	41.9x	49.0x	43.2x
	Convertidora Industrial Sa-A	5.0x	NA	NA	0.3x	NA	NA	41.9x	NA	NA
	Psb Industries	4.7x	NA	NA	0.3x	NA	NA	15.3x	NA	NA
	Astrapak Ltd-Uts	NA	NA	NA	NA	NA	NA	NA	NA	NA
	Bilcare Ltd	34.4x	NA	NA	0.0x	NA	NA	6.9x	NA	NA
	Median	10.5x	8.6x	7.1x	1.2x	1.1x	1.1x	15.3x	16.4x	12.2x
	High	34.4x	33.0x	29.0x	5.3x	9.4x	8.6x	41.9x	49.0x	43.2x
	Low	4.7x	0.1x	0.1x	0.0x	0.0x	0.0x	2.8x	7.8x	6.8x
	Premium (disc) to peers	(50%)	(39%)	(30%)	3%	(36%)	(35%)	1%	(57%)	(30%)

Source: Bloomberg and Thomson Eikon (as on 21 July 2023)

Exhibit 2: CPH - Comparison with weighted average of division peers

			EV/EBITDA			P/S			P/E
		3 year			3 year			3 year
		average	CY2023E CY2024E	average CY2023E	CY2024E	average	CY2023E	CY2024E
	Weighted peer multiples	12.1x	10.0x	9.0x	1.3x	1.9x	1.8x	20.4x	18.2x	15.4x
	CPH	5.2x	5.3x	5.0x	1.2x	0.7x	0.7x	15.4x	7.0x	8.6x
	Premium (disc) to peers	(57%)	(47%)	(45%)	(10%)	(63%)	(61%)	(25%)	(61%)	(44%)

Source: Bloomberg and Thomson Eikon (as on 21 July 2023)

CPH

Switzerland | Industrial Goods & Services

4

DETAILED FINANCIAL STATEMENTS

Income Statement

	CHF mn (except per share)		FY18		FY19			FY20			FY21			FY22			FY23E		FY24E
	Chemistry sales	79		78		73		95		110		114	117
	Paper sales		301		293			210			231			384			280		266
	Packaging sales	153		153		162		171		231		245	257
	Net Sales		534		525			445			497			725			638.8		640.4
	Cost of Sales	(311)	(298)		(255)	(336)	(431)	(393)	(411)
	Gross profit		222		227			190			161			294			246		229
	Personnel cost	(92)	(93)		(93)	(92)	(102)	(101)	(106)
	Outsourced maintenance/repairs		(19)		(20)			(17)			(18)			(28)			(19)		(19)
	Other operating expense	(28)	(26)		(25)	(25)	(34)	(31)	(31)
	Total operating costs		(139)		(139)			(135)			(135)			(163)			(151)		(156)
	EBITDA	83		88		55		26	131		95	74
	Depreciation		(30)		(30)			(29)			(27)			(16)			(19)		(20)
	Amortisation	(1)		(1)		(1)		(1)		(2)		(1)	(1)
	Operating profit (EBIT)
	before impairment		52		57			25			(3)			112			75		53
	Impairment	0		0		0		(150)	0		0	0
	Operating profit (EBIT)		52		57			25			(153)			112			75		53
	Finance costs	(7)		(6)		(5)		(5)		(4)		(1)	0

	Finance income		1			0			0			1			0
	Total financial income
	(expenses)	(6)	(6)		(5)		(4)		(4)
	Profit before taxes (before
	exceptional items)		46			51			20			(157)			108
	Non-operating items	0	1		19		7		(8)
	Income taxes		(3)		(3)			8			(2)			1
	Profit attributable to the
	parent	42	48		47		(152)		101
	Basic EPS		7.1		8.1			7.8			(25.3)			16.8
	Diluted EPS	7.1	8.1		7.8		(25.3)	16.8
	DPS		1.8		1.8			1.8			1.3			4.5

0 0

(1)	0
74	53
17	0
(13)	(8)

78 45

13.0 7.5

13.0 7.5

4.2 3.6

Source: Research Dynamics, Company data

Balance Sheet

	CHF mn		FY18			FY19		FY20		FY21			FY22			FY23E		FY24E
	Assets
	Non-current assets
	PPE	376.1		366.4		352.6	196.5		213.7		229.2	236.9
	Intangible assets		5.8			5.6		5.6		5.8			4.5			4.6		4.7
	Long-term financial assets	10.0		10.0		10.0	10.0		10.0		10.0	10.0
	Long-term financial receivables		0.0			0.0		0.0		0.0			0.0			0.0		0.0
	Other non-current assets	55.3		54.0		64.8	58.4		55.8		55.8	55.8
	Total non-current assets		447.2			436.0		432.9		270.7			284.0			299.6		307.5
	Current assets
	Inventories		69.6			78.5		78.3		87.5			113.1			91.0		96.2
	Trade accounts receivable	72.1		72.4		52.9	69.3		93.9		83.0	83.2
	Other receivables		13.1			14.0		17.2		28.5			21.9			16.9		13.9
	Prepaid expenses and accrued
	income	9.2		8.6		6.7	9.2		9.6		9.6	9.6
	Short-term financial receivables		100.3			0.0		0.0		0.1			0.0			0.0		0.0
	Liquid funds and Securities	89.0		93.1		116.3	95.1		143.6		100.6	110.0
	Total assets		800.5			702.7		704.2		560.4			666.2			600.7		620.4
	Shareholders' Equity and Liabilities
	Share capital		12.0			12.0		1.2		1.2			1.2			1.2		1.2
	Capital reserves	15.0		4.2		4.2	(0.1)	(0.1)	(0.1)	(0.1)
	Profit reserves		336.2			375.2		418.5		459.5			397.1			370.1		422.8
	Net result for the year	42.3		48.3		46.9	(151.6)	0.0		77.9	44.9
	Non-current liabilities
	Long-term financial liabilities	120.5		116.8		109.7	106.6		0.0		0.0	0.0
	Pension scheme liabilities		1.3			0.7		1.2		1.4			1.7			1.7		1.7
	Other long-term liabilities	0.8		0.6		0.4	0.3		0.0		0.0	0.0
	Long-term provisions		50.0			47.5		31.5		24.1			31.4			26.4		23.4
	Current liabilities
	Trade accounts payable		69.7			66.3		56.8		84.8			93.0			80.3		83.2
	Other payables	4.1		3.6		4.6	3.9		6.5		6.5	6.5
	Accrued liabilities and deferred
	income		20.0			16.3		16.8		18.3			27.2			27.2		27.2
	Short-term financial liabilities	125.8		5.9		8.1	3.2		98.9		0.0	0.0
	Short-term provisions		1.2			3.8		3.3		7.4			7.8			7.8		7.8
	Total liabilities	393.3		261.4	232.4	249.9		266.6	150.1	150.0
	Total equity and liab.		800.5			702.7		704.2		560.4			666.2			600.7		620.4

Source: Research Dynamics, Company data