[ET Net News Agency, 17 November 2017] Deutsche Bank lifted its target price for Lee
Man Paper (LMP)(02314) to HK$8.3 from HK$8.06, and maintained its "hold" rating.
The research house said paper prices have defied its expectations in the last six
months, but DB believes they are not sustainable and the turning point is now.
China containerboard prices have come crashing down, falling by RMB1200/t or 19% in the
last two weeks. Aggressive inventory restocking during September-October by downstream box
makers has overdrawn even December-January 2018 paper demand, and a weaker-than-expected
11 November shopping season did not help either.
DB believes that prices should continue to fall in the coming months, as clearing up 3-4
months of inventories in the system will take time.
It said large mills in China are also losing market share to small mills, even after the
mill closures in 2017. LMP saw its market share (by sales volume) peak in 2016 at 10.7%
and actually decline to 10.4% in 2017. DB expects a further 2ppts market share decline for
the company by 2020 if new capacity comes out as planned.
Given the stronger-than-expected pricing and earnings in the last six months, DB
revised its earnings for FY2017-19 for LMP by 31%/15%/-36%. (KL)