We maintain the TP at HK$4.30 and reiterate "Buy" rating. We maintain the forecasted EPS in 2023-2025 at HK$0.581/ HK$1.136/ HK$1.489, respectively, which represents YoY growth of (58.5%)/ 95.3%/ 31.1%. We maintain the TP at HK$4.30, representing 2023/ 2024/ 2025 PER of 7.4x/ 3.8x/ 2.9x, respectively.
Lee & Man Chemical (LMC, or the "Company") is a beneficiary of the acceleration in market consolidation. Since the start of 2024, except for some of the polymers products like PTFE, LMC's other main products have seen price declines, with caustic soda, dichloromethane, and hydrogen peroxide decreasing by 2.3%, 7.6%, and 6.7% YTD, respectively. While short-term profits of the Company may be impacted, price declines are poised to eliminate smaller, highly indebted companies and accelerate market consolidation. With a very low gearing ratio of 9.8% as at 1H23 and significant presence in the Jiangsu and Jiangxi markets, we expect LMC to gradually increase its market share as weaker players exit the market and also through acquisition of smaller players.
Active expansion into new materials businesses. The expansion project in Jiangxi, once completed in 2025, can produce 10,000 tons/year lithium hexafluorophosphate (LiPF6), 20,000 tons/year polyvinylidene fluoride (PVDF), and 50,000 tons/year of ancillary hydrogen fluoride products. In addition, the 3,000 tons/year of fluoroethylene carbonate (FEC) facility in Zhuhai, which is planned to be completed in two phases by 2024 and 2025, will significantly increase the Company's production capacity for lithium-ion battery electrolyte additives. We estimate that these products can contribute an additional revenue of RMB3.3 billion at current market prices, once in full production.
Catalysts: 1) The acceleration in market consolidation may raise the Company's market share, and; 2) the Company's new materials projects are set to commence production in 2024 and 2025.
Risks: 1) The coming years may see intense market competition due to significant capacity increases, and; 2) technological advancements in batteries could profoundly impact the demand for the Company's products.