Solid 1H13 results, but share price likely to give back some gainsfrom last week’s rally

While Lee & Man Paper’s (LMP) 1H13 results were very solid and in linewith our and consensus estimates, we think the share price is likely to giveback some of its 10% gain from last week, considering management’scomments of a flat ASP outlook in the near term and a lack of share pricecatalysts until the possibility of ASP hikes in 4Q13F. Our base caseremains for a potential price hike in 4Q13F, and if LMP can raise ASPsmore than once, it would come as a positive surprise to the market andlikely drive the share price towards our TP of HKD7. Maintain Buy.

Key takeaways from the 1H13 interim results

1) ASPs: management does not expect any near-term price hikes owing toweak macro conditions. However, it still hopes to raise ASPs in 4Q13F(same as our base case) but this is not definite. 2) Margins should bestable even if there is no ASP hike, since waste paper costs are onaverage flat (prices of US imports are rising but prices of other sources arefalling). We forecast net dollar margin of HKD415 in 2013F (1H13:HKD423). 3) Sales volumes: LMP guides for 4.7-4.8mn tons in 2013F and5.2mn tons in 2014F – same as our estimates. 4) Finished goodsinventory and net gearing remain healthy at 16 days and 63%,respectively.

Maintain Buy and HKD7 TP based on 2.1x forward P/B

We appear to have revised our EPS forecasts materially, but the changeslargely reflect LMP moving its financial year-end from March to December,thereby resulting in a timing difference for profit booking.

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