LEE&MAN CHEMICAL(00746.HK)：1H2024 SHAREHOLDERS‘ NET PROFIT TO INCREASE BY 125% YOY-格隆汇

机构：国泰君安国际
研究员：Gary Wong

　　We maintain the TP at HK$4.10 and reiterate “Buy” rating. We maintain the forecasted EPS in 2024/ 2025/ 2026 at HK$0.674/ HK$1.109/ HK$1.284, respectively, which represents YoY growth of (58.5%)/ 95.3%/ 31.1%. We maintain the TP at HK$4.10, representing 2024/ 2025/ 2026 PER of 5.5x/ 3.3x/ 2.9x, respectively.
　　Profit attributable to shareholders will increase approximately by 125% YoY in 1H2024. Lee & Man Chemical (LMC, or the “Company”) explained that due to the decrease in costs of certain materials and energy, shareholders’ net profit will increase approximately by 125% YoY in 1H2024, equivalent to approximately HK$230 million. We think that in addition to the decrease in costs, the increase in prices of refrigerants, which drive the demand of chloromethane produces such as methylene chloride, one of the major products of the Company, also help the improvement in its 1H2024 results.
　　We are looking for a strong recovery in 2024 due to improving demand and better product mix. 1) We expect recovery of some of basic chemicals prices, with improving demand while some of smaller manufacturers went out of business during recent market consolidation. 2) New production line of vinylene carbonate (VC) at Changshu plant and expanded production line of fluoroethylene carbonate (FEC) at Zhuhai plant will generate additional revenue. 3) LMC readjusted the purpose of the new land acquired in Jiangxi province to develop high-end fluoropolymers, which have higher gross margin.
　　Catalysts: 1) The acceleration in market consolidation may raise the Company’s market share, and; 2) the Company’s new materials projects are set to commence production in 2024 and 2025.
　　Risks: 1) Weak market sentiment may sustain for some of the bulk chemicals, and; 2) technological advancements in batteries could profoundly impact the demand for the Company’s products.