Goldman Sachs lowered its target price for Lee & Man Paper Manufacturing (LMP)(02314) to HK$4.3 from HK$7 and maintained its "neutral" rating.
The research house revised down earnings for LMP by 14%-57% for 2019-21, to reflect its lower unit GP assumption for containerboard. Goldman believes the industry-wide spread correction is mostly done with small to medium-sized players mostly at breakeven point at spot prices, while it expects large players like LMP will continue to suffer unit profit decline - Goldman estimated the unit raw material cost will increase by HK$86/t in 2020 and HK$118/t in 2021.
With demand weakness, it believes LMP will find it hard to pass through the cost increase to downstream customers. Hence, Goldman expects unit GP to decline to HK$261/t in 2020 and HK$181/t in 2021, from HK$502/t in 2019.