Oji Leads Japan Papermaker Surge on Profit Outlook

Oji Paper Co. (3861), Rengo Co. and other Japanese papermakers surged after UBS AG increased its target prices on two companies, and the Nikkei newspaper said higher prices will help boost profits.

Oji, Japan's largest papermaker by revenue, climbed 3.1 percent to close at 502 yen on the Tokyo Stock Exchange. Nippon Paper Group Inc. (3893), the second biggest, gained 2.5 percent to 287,000 yen. Rengo, the nation's biggest maker of cardboard, rose 3.8 percent to 711 yen.

The Topix Pulp & Paper Index surged 3.4 percent, the second biggest gain among 33 industry groups on the broader gauge.

Kazuya Hisataka, an analyst at UBS in Tokyo, lifted his share price estimate on Nippon Paper by 7.1 percent to 300,000 yen and by 4.8 percent to 880 yen for Rengo, citing the possibility that rising prices will lift earnings.

``Even taking into account heavier pressure from rising energy prices, particularly city gas and LNG, we believe bigger- than-expected price hikes for cardboard'' will help profit beat management forecasts by 36 percent, the analyst wrote in his report on Rengo dated May 26.

All three companies have forecasted operating profit to rise more than 10 percent this year, with Nippon Paper estimating a 30 percent surge.

Japan's papermakers are raising prices to offset higher costs for wood chips and other materials, the Nikkei reported today.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

To contact the editor responsible for this story: Nicolas Johnson nicojohnson@bloomberg.net.

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