Bank of America Securities: Increased pulp and tissue production capacity drives growth, raises target price for LEE & MAN PAPER (02314) to HKD 4.5.

Bank of America Securities has released a research report stating that LEE & MAN PAPER (02314) saw a recovery in profit margins for corrugated paper and tissue businesses in the first half of the year, along with a 12% increase in sales, which drove a 69% year-on-year increase in net profit after tax. Management revealed that despite the traditionally quiet second quarter for the corrugated paper market, price increases have continued, reflecting a gradual recovery from the excess capacity seen in previous years. With the peak season approaching in the second half of the year, Bank of America Securities expects profit margins to improve further. In response to this positive outlook for profit margins, the bank has raised its earnings forecasts for 2026 to 2028 by 23%, 11%, and 7% respectively, increasing the target price from HKD 3.8 to HKD 4.5, while maintaining a "Buy" rating. LEE & MAN PAPER has invested 6 billion yuan in the Guigang project in Guangxi, with plans to establish a production capacity of 750,000 tons of pulp and 300,000 tons of tissue, expected to commence production in August 2027. Bank of America Securities believes that once this project is operational, the group's total capacity will increase to 1.7 million tons of pulp and 1.5 million tons of tissue, making it the second-largest vertically integrated producer of pulp and tissue in China, which is expected to support future growth in the pulp and tissue businesses.