HSBC Global Research initiated coverage on Lee & Man Paper (LMP)(02314) with a "buy" rating and a target price of HK$6.5.
Although the research house thinks LMP is not as well prepared as Nine Dragons Paper (02689) in terms of dealing with the complete ban on wastepaper imports by year-end 2020, HSBC believes it is still in better shape compared to most companies in the industry.
HSBC expects to see both GP/t and earnings to start growing again in 2020. LMP started to secure pulpboard supplies from Myanmar in September 2019, with an annual supply of 0.34mt. Pulpboard is like recycled pulp that can be used as a replacement for wastepaper, and 0.34mt can satisfy around 6% of LMP's wastepaper needs.
HSBC expects LMP's earnings to decline by 16% in 2H, but this would represent a big improvement on the 44% fall in 1H, and the research house expects earnings to grow again in 2020. HSBC forecast an earnings CAGR of 8% from 2019 to 2021.
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