Lee & Man Paper Manufacturing Limited (2314.HK) is a world leading manufacturer of paper and pulp. The company produces liner boards of various grades, corrugating medium of different specifications for a wide range of industrial packaging purposes, and since recently tissue paper. Lee & Man has five plants in China, where over 95% of the company’s revenue is derived from, and one plant near completion in Vietnam. The Hong Kong-based company was founded in 1994 and is listed on the main board of HKSE since 2003. Shares can be furthermore traded in the US and in Germany. Lee & Man is a subsidiary of Gold Best Holdings Ltd. The public float is around 31%.
With a workforce of more than 6,300 employees, the company generated revenues of 8.4bn HKD and a profit before tax of 1.7bn HKD in the first half of this year. While revenues decreased by 4%, profit increased by remarkable 28%. In 2015, revenues and profit were up 3% and 25% respectively compared to the year before. Lee & Man benefitted from a factory shutdown to reduce overcapacity, from falling commodity prices, and from refund policies for value-added taxes. The company increased overall profitability and has a net profit margin of 15% which is well above industry average.
Lee & Man expanded its business recently by entering the tissue paper market with an own brand called “Hanky”. Production started in late 2015 and is intended to contribute significantly to the company’s profit. Despite the economy slowdown in China and overcapacity in the packaging paper market, the demand for packaging paper products is expected to grow steadily in the long run. Paper consumption per capita in China is still far behind that of developed countries. Lee & Man will benefit from higher standards in environment safety in China which will force smaller competitors out of business. E-commerce and online shopping will have enormous growth potential for the packaging paper market. Chinese consumer industry is growing fast with an annual growth of 8 percent. Lee & Man plans to invest in further production facilities in Southeast Asian with a first plant in Vietnam that will soon start operation.
Lee & Man’s shares are in an uptrend since the beginning of this year and gained more than 50%. Shares are currently moderately priced at 11 times its earnings. An equity ratio of 50% indicates a healthy balance sheet. 13 out of 15 covering analysts are rating the company currently as outperformer with an upside potential of up to 30%.
AIS Rating: ★★★★☆
| 2010/11 | 2011/12 | 2013 | 2014 | 2015 | 2016 H1 only |
|
|---|---|---|---|---|---|---|
| EPS (HKDcents) | 39.3 | 28.6 | 41.4 | 40.7 | 50.4 | 31.4 |
| Change | 0% | -27% | 45% | -2% | 24% | 31% |
| P/E | P/E Industry |
P/B | P/CF | Equity Ratio |
ROE | Debt/ Equity |
Div YLD |
|---|---|---|---|---|---|---|---|
| 11 | 15 | 1.7 | 8.4 | 50% | 15% | 99% | 3.1% |
