We slightly revise down the TP to HK$4.10 but reiterate "Buy" rating. We revised down the EPS forecast for 2024 and 2025 by 40.7% and 25.5% to HK$0.674 and HK$1.109, respectively, and initiate the EPS forecast for 2026 at HK$1.284. We slightly revise down the TP to HK$4.10, representing 2024/ 2025/ 2026 PER of 5.5x/ 3.3x/ 2.9x, respectively. Reiterate "Buy" rating.

Lee & Man Chemical's (LMC, or the "Company") Shareholders' net profit decreased 65.3% YoY to HK$401 million in 2023. Total revenue decreased 31.0% YoY to HK$4,051 million, among which revenue of caustic soda, chloromethane products (CMS) and polymers dropped 30.1%, 41.2% and 37.7% YoY, to HK$1,586 million, HK$887 million and HK$544 million, respectively, mainly due to drop in average selling prices with a weak market sentiment and customers' prolonged digestion of inventory. Gross margin dropped 10.0 ppts YoY to 26.2%, mainly due to the decline of gross margin of chemical operation by 13.1 ppts YoY to 26.0%.

We are looking at a strong recovery in 2024 due to improving demand and better product mix. 1) We expect recovery of some of basic chemicals prices in 2024, with improving demand while some of smaller manufacturers went out of business during recent market consolidation. 2) New production line of vinylene carbonate (VC) at Changshu plant and expanded production line of fluoroethylene carbonate (FEC) at Zhuhai plant will begin operation in the middle of this year, providing additional revenue. 3) LMC readjusted the purpose of the new land acquired in Jiangxi province to develop high-end fluoropolymers, which have higher gross margin.

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)Weak market sentiment may sustain for some of the bulk chemicals,and; 2) technological advancements in batteries could profoundly impact the demand for the Company's products.