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.
Profit attributable to shareholders decreased 65% YoY in FY2023, which was in line with expectation. Lee & Man Chemical (the "Company") explained that due to the decrease in average market prices of the Company's major products under the weak market conditions, revenue and gross profit margin dropped and led to a 65% YoY decrease in profit attributable to shareholders during FY2023, which was largely in line with our expectation.
The drop in major products prices has stabilized in 2024. The significant decrease in product prices in FY2023 was mainly due to the demand-supply imbalance in the market. On one hand, with the comprehensive relaxation of domestic pandemic prevention measures, the upstream supply capacity that had been suppressed during the pandemic period was released. On the other hand, manufacturing clients generally increased their inventory levels during the pandemic to cope with potential uncertainties, leading to weak downstream demand. However, this situation has gradually improved with supply stabilizing while demand starts to increase with depletion of inventory and recovery of the economy, and prices of major products cease to drop and some of them start to rise.
We estimate that new products can contribute additional revenue of RMB3.3 billion at current market prices, once in full production. The expansion project in Jiangxi province, 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.
Catalysts: 1) The acceleration in market consolidation may increase 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.