High costs and ongoing destocking drives 42% Q1 EBIT miss vs consensus UPM''s Q2 comparable EBIT fell 70% year-on-year. Raflatac (labels) saw the biggest revenue miss, whilst profits fell short in Fibres (pulp), Energy and Other (biorefinery) segments due to lower volumes and higher costs in particular, though encouragingly these are starting to roll over. Operationally the biggest disappointment is a year''s delay and cost overruns at Leuna, but against this the new Uruguay pulp mill is ramping up according to plan whilst group capex requirements are falling. We lower EPS 9-47% and DCF-derived target price slightly but, on 10x 2024 PE, we see attractive fundamental value and reiterate our Outperform rating. Weak underlying volume trends persisting but new capacity starting to ramp up... Volumes fell 30% yoy in Plywood and 12% in Communication Paper but most notable was the 25% revenue decline in Raflatac, or c.32% on an organic basis on our estimates. More encouragingly, Fibres volumes rose 60% yoy or 10% yo2y (stripping out the impact of last year''s strike) as the Paso de los Toros mill began operations. Management has confirmed full output should be achieved by the end of 2023, with the USD280/tonne delivered production cost reconfirmed. ...whilst costs remaining high, but are now starting to fall Fibres production costs rose a further 4% qoq but encouragingly management sees Finnish wood costs stabilising from here. The fallen pulp price should also feed into a cost tailwind to paper divisions in 2H. Hence, we see UPM''s guidance for 2H comparable EBIT ''to be on a similar level or increase'' versus H1 to be potentially conservative, though much depends on the end of destocking pressures and market prices. We model a flat pulp price of c.USD505/tonne to year end. Trimming DCF-derived target price to EUR35 - reiterate Outperform The Leuna biochemical project cost has jumped EUR430m but the 14% project ROCE reiterated and overall group capex...