HSBC Global Research lifted its target price for Lee & Man Paper (L&M) (02314) to HK$9 from HK$8.5 and maintained its "buy" rating.
The research house said L&M's 2020 NPAT of HK$3.5bn was in line with HSBC's estimate. Despite a demand impact due to COVID-19 with earnings down by 20% in 1H, sales volume, margins, and earnings turned around with 41% growth in 2H.
HSBC noted that a production line with a 250kt capacity of containerboard will begin operations in April 2021. L&M will continue to search for new opportunities and expand outside mainland China.
HSBC believes adding overseas capacity is a strategic move that will allow it to benefit from lower overseas OCC (old corrugated cardboard) costs as China has completely banned
OCC imports. It increased its earnings forecasts for 2021 and 2022 by 6%, incorporating the latest annual results as well as marking to market the latest paper price.