Initiation of Research Coverage: China Shengda Packaging Group Inc.

Thursday, March 3, 2011

William Blair & Company initiated research coverage of China Shengda Packaging Group Inc. (CPGI $3.30), the leading corrugated box manufacturer in an important economic zone within China, with a Market Perform rating and Aggressive Growth company profile.

Analyst Nathan Brochmann estimated the company would generate earnings of $0.73 per share in 2011 and $0.87 per share in 2012.

“The Chinese paper packaging industry appears to be ripe for consolidation,” Brochmann said, “as there are over 20,000 manufacturers located throughout China. We believe China Packaging should be among the companies that are well positioned to lead this likely consolidation trend because of its strong customer relationships, proprietary products, and advanced manufacturing equipment and techniques. The company maintains size and scale advantages over other competitors and has an established position in the Yangtze River Delta Region (YRD), an important industrial region that accounts for 20% of total China GDP. In addition, China Packaging represents an opportunity to invest directly into Chinese domestic consumption, a theme that should gain momentum as the global economy improves. We believe the China market for corrugated packaging material is at least 10 to 20 years behind that of the United States.”

Brochmann continued, “As a result of these factors, we are excited about the long-term prospects regarding the company’s direct relationship to what should be a faster growth market. However, we believe concern regarding near-term consumer consumption and the macroeconomic environment in China may temporarily limit investor interest and expect low liquidity in the stock to be an issue for investors.”

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Coverage Universe
Outperform (Buy): 65%
Market Perform (Hold): 34%
Underperform (Sell): 1%

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