20150811-DBS_Group-Macro_demand_still_weak_12页_309kb

报告摘要

Company Profile: Lee & Man Paper is the second-largest containerboard manufacturer in China, operating in the Basic Materials industry, specifically within the Forestry & Paper sector.
Rating: HOLD
Last Traded Price: HK$5.00
Price Target: HK$5.50 (10% upside from the current price)
Potential Catalyst: Stronger economic growth leading to higher ASP and earnings growth
Where We Differ: The analysts are more conservative in their margin assumptions compared to other brokers

Metric	2014A	2015F	2016F	2017F
Turnover (HK$ m)	17,099	17,678	19,200	20,643
EBITDA (HK$ m)	3,263	3,756	4,226	4,476
Pre-tax Profit (HK$ m)	2,209	2,711	3,034	3,408
Net Profit (HK$ m)	1,904	2,332	2,610	2,931
EPS (HK$)	0.41	0.50	0.57	0.64
EPS Growth (%)	-2.0	23.6	12.7	12.3
Diluted EPS (HK$)	0.41	0.50	0.57	0.64
DPS (HK$)	0.14	0.18	0.20	0.22
BV Per Share (HK$)	3.74	4.23	4.61	5.04
PE (X)	12.3	9.9	8.8	7.9
P/Cash Flow (X)	9.2	10.9	8.1	6.0
P/Free CF (X)	120.1	nm	15.9	8.1
EV/EBITDA (X)	10.5	9.4	8.3	7.5
Net Dividend Yield (%)	2.9	3.5	4.0	4.5
P/Book Value (X)	1.3	1.2	1.1	1.0
Net Debt/Equity (X)	0.6	0.6	0.6	0.4
ROAE (%)	11.3	12.6	12.8	13.2
Earnings Rev (%)	-	14	15	New
Consensus EPS (HK$)	-	0.47	0.55	0.61
Other Broker Recommendations	-	B: 10	S: 1	H: 1

Profile: LMP is a leading containerboard manufacturer in China, with major products including linerboard, high performance corrugating medium, and coated duplex board.
Rationale:
- Closing of inefficient capacity: At least 2m tons of inefficient capacity were closed in 1H2015, leading to a Rmb150 per ton increase in ASP. An additional 0.5m tons is expected to be closed by the end of 2016.
- Weak demand: Despite improved margins, the demand for containerboard remains weak due to sluggish economic growth.
- Tissue segment: While the tissue division is highly profitable (HK$1,350 per ton), its scale is small and unlikely to significantly impact the bottom line. The introduction of a new brand, "Hanky", poses execution risks.
Valuation: The price target of HK$5.50 is based on a 10x 12-month rolling PE.
Risks:
- Slow China economic growth: Slower GDP growth could lead to weaker demand for containerboard.
- Tissue profitability: There is a downside risk if the profitability of the tissue segment does not extend well to other regions.

1H15 Results: Exceeded market expectations, with a 4.7% increase in turnover to HK$8.695 billion. Sales volume increased by ~12% y-o-y due to the commencement of the PM20 paper machine.
Margin Improvement: Gross margin increased by 3ppts to 20.6%, driven by better-than-expected margins and reduced supply.
Interim Dividend: Declared HK$6.8 cents per share, in line with the previous payout of 35%.
Net Debt/Equity: Improved to 59% from 62% in FY14.

Capacity Expansion:
- TM3 (Chongqing): Expected to operate in October 2015 with a raw tissue paper annual production capacity of 55,000 tons.
- PM19 (Vietnam): Expected to commence operation in 2Q16 with a capacity of 280,000 tons for containerboard.
- Total capacity for containerboard is expected to reach 5.63m tons and 135K tons for raw tissue paper by FY16.
Capex Plan: Targeted capex of HK$1.3 billion in FY16, down from Rmb3 billion in FY15. The plan may be revised based on opportunities.
ASP Trends: ASP for containerboard in Guangdong increased by Rmb150 per ton between April and June 2015, but declined slightly in July and August. The analysts believe the current ASP is sustainable due to continued capacity closures.
Earnings Growth: Expected to be slow and gradual due to weak consumer spending.

Net Operating Cash Flow (HK$ m): Increased in 1H15 to HK$1,288.1 million, up from HK$1,119 million in 2H2014.
Net Cash/Debt (HK$ m): Negative in 2015F and 2016F, indicating a focus on reinvestment.
Net Debt/Equity: Improved to 0.4 in 2017F, suggesting better leverage management.
Dividend Payout Ratio: Remained around 35% for FY15 and FY16.

PE: LMP's PE is lower than the average of its peers, indicating a potential undervaluation.
P/BV: LMP's P/BV is also lower than the industry average, suggesting a discount to book value.
ROE: LMP's ROE is higher than the industry average, indicating better returns on equity.

Risks:
- Economic slowdown: Weak consumer spending and slow economic growth could limit earnings growth.
- Tissue segment execution risk: Introducing a new brand into a competitive market may not yield the expected profitability.
Opportunities:
- Capacity closure: Continued closure of inefficient capacity could support ASP and earnings.
- Stable cash flow: Strong cash flow allows for steady expansion and reinvestment without the need for additional financing.

The analysts maintain a HOLD rating, citing the potential for modest earnings growth and the risk of weak demand due to sluggish economic conditions.
The price target of HK$5.50 reflects the improved margins and a conservative valuation based on 10x 12-month rolling PE.
The company is well-positioned to benefit from reduced supply and capacity closures, but the lack of strong economic growth remains a concern.

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