VIEWS: 6 PAGES: 6 POSTED ON: 10/12/2012
輝立証券(香港)有限公司 PHILLIP SECURITIES (HK) LTD. EXCHANGE PARTICIPANT OF THE STOCK EXCHANGE OF HONG KONG LTD. Dealer’s Commentary (24 April 2012) – Jonathan Chiu LEE & MAN CHEMICAL CO. LTD Company Name Lee & Man Chemical Co. Ltd Stock Code 746 Recommendation: Buy Buy in Price $6.20 HKD 1st Target Price $7.07 HKD 12 month target: $10.08 HKD 1st Cut Loss Price $5.50 HKD Market Cap.: $5.346 billion HKD Share I/S: 825 million 52 weekly: Highest: $10.73 HKD Lowest: $3.44 HKD P/E (trailing) as of Apr.20 2012 7.96 P/B as of Apr.20 2012 3.14 Date Apr. 24 2012 Written by Jonathan Chiu Summary I would recommend a buy rating on Lee & Man Chemical Co Ltd as of Apr. 24 2012 based on my analysis using technical and fundamental analysis. The stock has been trading around 4.41 HKD in Jan 2011, and currently there has a been a strong uptrend the stock is trading at 6.48 HKD as of Apr. 20 2012 although volume is low. Buy-in price at 6.20 HKD, 1st target price at 7.07 HKD, cut loss price at 5.50 HKD, and 12 month target price at 10.08HKD. Lee & Man Chemical Ltd's has been robust and improving it's business operations and productivity capacity since end of Dec 2009; as of year end of Dec 2011 Lee & Man Chemical Ltd has achieved record high in revenue and net profit: 1.808 billion HKD and 637 million HKD; respectively. End of 2011, Lee & Man Chemical's net profits has gained +390% since 2009. As of December 31, 2011, the quick ratio is 3.5917 improved substantial by +328.21% compared in 2010 the quick ratio was only 0.8470. The total debt ratio is 41.46%, improved slighty by +0.033% from 0.40129 previous in 2010. And as of December 31, 2011 the company's net profit margin was 37.40%, return on assets was 23.86%, and return on equity was 40.77% which is considered high. Company profile Lee & Man Holdings started manufacturing and selling in the handbag business and slowly invested more capital resources in the chemical business now known as Lee & Man 輝立証券(香港)有限公司 PHILLIP SECURITIES (HK) LTD. EXCHANGE PARTICIPANT OF THE STOCK EXCHANGE OF HONG KONG LTD. Chemical Co Ltd. The company was founded by the Chairman Ms. Wai Siu Kee. She has more than 46 years in the manufacturing industry. On June 27, 2011, Lee & Man Group spun off its handbag business and has listed on the Main Board of the Hong Kong Stock Exchange under Lee & Man Handbags (Stock code 1488) by way of introduction. On October 18, 2011, the renamed the company was effectively changed from Lee & Man Holding Limited to Lee & Man Chemical Company Limited. The spin off of the handbag business enables the management team to focus mainly on the development of the chemical business. The management team believes this allows the investors more transparency and clearer operations, and financial positions in the chemical business. Lee & Man Chemical’s main business focuses on chemical products including chloromethanes, hydrogen peroxide and caustic soda in production since end of 2008. Lee & Man Chemical owns 100% of Lee & Man Company Ltd, Guangdong Lee & Man Chemical R & D Ltd, and Jiangsu Lee & Man Chemical Ltd. End of Dec 2011, the company employs more than 700 staff. Lee & Man Chemical’s main sales is from producing Chloromethane products Caustic soda, and Hydrogen peroxide representing 58.8%, 32.18%, and 6.48% of its sales; respectively. The company’s annual production from the Jiangsu Chemical Plant has reached 160,000 tons of chloromethane, 220,000 dry tons of caustic soda and 120,000 tons of hydrogen peroxide in 2011. Lee & Man Chemical’s majority of customers resides in China with 99%, and the remaining 1% resides in the U.S. Financial Analysis Lee & Man Chemical business recorded $1.808 billion HKD increase by 40.7% and net profit increase by $637 million HKD increase by 77.9% over the same period last year (Appendix A). It’s annual gross profit margin has increased from 44.7% to 46.7%, and net profit margin also increased from 27.9% to 35.2%. In addition, Lee & Man Chemical's net profits has gained +390% since 2009. Last year, the hangbag business now listed as L& M Handbag (Stock code 1488) recorded $347 million and net profit of $39 million where it spun off it’s listing. As of Dec 2011, total assets increased by +30.57%, from 2.17 billion HKD in 2010 to 2.833 billion HKD in 2011. And total liabilities had decreased by -8.7% year on year, from 870.86 million HKD in 2010 to 795.06 million HKD in 2011 (Appendix B). At the same time, Lee & Man Chemical has a very strong cash reserve waiting for business opportunities and future expansions. End of Dec 2011 net cash flow of 1.233 billion HKD from 393, 385 million HKD an increase of 213% from the previous year. End of this year, the company retention of the remaining profit for the year of $437 million HKD. 輝立証券(香港)有限公司 PHILLIP SECURITIES (HK) LTD. EXCHANGE PARTICIPANT OF THE STOCK EXCHANGE OF HONG KONG LTD. With the strong cash reserves I believe the company can withstand the headwinds and turbulence in the current economy from the posing debt problems in the U.S. and in the European countries. As the management team at Lee & Man Chemical has pointed out with the strong annual profit performance last year they are waiting for potential business opportunities and for future expansions in the chemical business (Annual Report 2011). Appendix Appendix A: Income Statement (Annual Report 2011) 輝立証券(香港)有限公司 PHILLIP SECURITIES (HK) LTD. EXCHANGE PARTICIPANT OF THE STOCK EXCHANGE OF HONG KONG LTD. Appendix B: Balance Sheet (Annual Report 2011) 輝立証券(香港)有限公司 PHILLIP SECURITIES (HK) LTD. EXCHANGE PARTICIPANT OF THE STOCK EXCHANGE OF HONG KONG LTD. Appendix C: Cash Flow Statement (Annual Report 2011) 輝立証券(香港)有限公司 PHILLIP SECURITIES (HK) LTD. EXCHANGE PARTICIPANT OF THE STOCK EXCHANGE OF HONG KONG LTD. Source: http://www.leemanchemical.com/index_en.html, aastock I, Jonathan Chun Yip Chiu, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto.