Lee & Man Paper's net profit predicted to jump to HK$931m

Rebound in OCC prices recorded in June and July.

According to Maybank Kim Eng, it expects LMP’s 1H13 net profit to increase to HKD931m.

This represents 47% of  Maybank's full-year estimates. There will be no YoY comparison in this set of results as LMP has changed its financial year-end from March to December. Nonetheless, we expect LMP to sell 2.3m tons of paper and record a dollar margin of about HKD403 per ton in 1H13.

Here's more:

Compared with last year (Apr-Sep 2012) of HKD336 per ton, net margin showed significant improvement as a result of rising utilization and slightly better product mix.

Rebound in OCC prices. The waste paper price has been in a downtrend in April and May, testing YTD trough of USD204/t. It started to rebound in June and July with the latest OCC price rising to USD225/t. We believe the bounce is due to strong demand from paper mills as 3Q is typically the peak season for them.

Given that the OCC price strength is likely to continue and LMP has a cost-plus model, we should expect more ASP hike news in the coming 2 months. 

LMP vs. Nine Dragons. It is easier for investors to compare LMP’s (Dec yearend) and Nine Dragons’ (Jun year-end) dollar margins on half-year basis from now on. Note LMP offers higher dollar margins, lower gearing and an ongoing share buyback vs Nine Dragons.