Rating and TP: We initiate with a rating of "Buy" and a target price of HK$4.30, representing 2023/ 2024/ 2025 PER of 7.4x/ 3.8x/ 2.9x.

Our Views: 1) Lee & Man Chemical (LMC, or the "Company") is falsely regarded as a traditional chemical company with homogenous low-end products; 2) LMC's products matrix is improving with lower sensitivity to economic cycle compared with peers.

Investment Theme: LMC, historically a basic chemical producer, is significantly undervalued given its expansion into the high-potential new materials market. Despite its traditional reliance on chemicals like caustic soda and hydrogen peroxide, its recent ventures into lithium-ion battery additives and high-end fluoropolymers signal a transformation. With the expected completion of the new materials projects in Jiangxi and Zhuhai by 2025, the Company's new materials revenue is forecasted to reach approximately HK$4.7 billion (RMB4.3 billion). The market will likely recognize the discrepancy once its full potential in new materials is operational, leading to a substantial revaluation.

Catalysts: 1) New materials projects are set to commence production over 2024 and 2025; 2) prices of major products continue to recover, leading to higher profitability.

Risks: 1) Upcoming years may see an intense market competition due to significant capacity increases; 2) technological advancements in batteries could profoundly impact the demand for the Company's products.