On Friday, Citi issued a downgrade for Lee & Man Paper Manufacturing Ltd (2314:HK) (OTC: LMPMY) stock, shifting the rating from Buy to Sell. The firm also adjusted the price target to HK$1.80, a decrease from the previous HK$3.80.
The downgrade comes as the stock experienced a 20% increase from its year-to-date low in early January, which had reflected anticipations of a strong earnings recovery in the first half of 2024.
The analyst at Citi highlighted several reasons for the downgrade. Firstly, there is a growing risk to earnings due to subdued consumption and a consumption downgrade in China.
Additionally, the continued import of packaging paper from Southeast Asia into China is expected to increase margin pressure on Chinese players.
In response to these market conditions, Citi has revised its earnings estimates for Lee & Man Paper for the years 2024 to 2026, reducing them by 17% to 40%. The revised price target of HK$1.80 reflects these adjustments.
Despite the downgrade, it's noted that Lee & Man Paper's earnings recovery for the first half of 2024 is consistent with the company's earlier positive profit alert.
However, Citi does not foresee any positive surprises in the upcoming results, which contributed to the decision to downgrade the stock to Sell from Buy.
InvestingPro Insights
Amid the downgrade by Citi, Lee & Man Paper Manufacturing Ltd (OTC: LMPMY) presents a mixed financial landscape. Notably, the company trades at a low Price / Book multiple of 0.36 as of Q4 2023, suggesting that the market might be undervaluing the company's assets relative to its share price. Furthermore, despite the challenges highlighted by Citi, Lee & Man Paper has demonstrated a commitment to shareholder returns, maintaining dividend payments for 21 consecutive years, with a current dividend yield of 5.14%.
InvestingPro Tips indicate that the management has been aggressively buying back shares, which could signal confidence in the company's future prospects. Additionally, analysts predict the company will be profitable this year, supported by the fact that it was profitable over the last twelve months. For investors seeking a deeper dive into Lee & Man Paper's financials and strategic moves, InvestingPro offers additional tips to guide investment decisions.
From a data standpoint, the company's market capitalization stands at $1.28 billion USD, with a P/E ratio of 6.33. However, revenue has seen a decline of 14.51% over the last twelve months as of Q4 2023. These metrics, combined with the insights from InvestingPro, can help investors weigh the potential risks and opportunities associated with Lee & Man Paper's stock.
Investors interested in exploring further details and gaining more InvestingPro Tips for Lee & Man Paper can visit https://www.investing.com/pro/LMPMY, which includes a robust set of additional tips to inform their investment strategy.
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