LEE & MAN CHEMICAL(00746.HK)：LOOKING TO NEW GROWTH OPPORTUNITIES MAINTAIN "BUY"-格隆汇

机构：国泰君安国际
研究员：Gary Wong

We maintain the TP at HK$4.10, reiterate “Buy” rating. We revised down the EPS forecasts for 2024/ 2025/ 2026 by 11.0%/ 41.6%/ 43.3% to HK$0.600/ HK$0.638/ HK$0.717, respectively. We maintain the TP at HK$4.10, representing 2024/ 2025/ 2026 PER of 6.8x/ 6.3x/ 5.6x, respectively. Reiterate “Buy” rating.
Lee & Man Chemical’s (LMC, or the “Company”) Shareholders’ net profit increased 129.5% YoY to HK$240 million in 1H2024. Total revenue increased 1.6% YoY to HK$1,969 million, among which revenue of caustic soda was HK$798 million (+0.5%), chloromethane products (CMS) was HK$457 million (-2.2%), fluorochemical products was HK$133 million (+83.1%) and polymers was HK$231 million (-15.3%). The substantial increase in flurochemical products was mainly due to the increase in sales volume, while the decrease in revenue of polymers was mainly due to the decrease in ASP of PTFE products. Gross margin increased 6.8 ppts YoY to 28.9%, driven by the substantial increase in revenue of higher gross margin fluorochemical products.
We are looking for a strong recovery in 2024 due to improving demand and better product mix. 1) Interim dividends substantially raised from HK$0.05 to HK$0.140, which showed the Company’s confidence in financial flexibility and commitment to shareholders’ returns. 2) Vinylene carbonate (“VC”) production line at Changshu plant and fluoroethylene carbonate (“FEC”) production line at Zhuhai plant will start production in 2H2024, and will significantly increase the capacity and improve cost-effectiveness for the
Company’s lithium-ion battery additives products. 3) The Company is actively looking to develop new production line for fluoropolymer products in Jiangxi plant, providing another growth driver in the future. 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.