LMP announced its FY17 results around lunchtime on Feb 28, 2018. Net profitrose by 76% yoy to HKD5.0bn or EPS HKD1.1/sh vs. DBe of NP of HKD5.5m andEPS of HKD1.22/sh. LMP proposed a fina dividend of HKD0.2/sh, implying a fullyeardividend payout of 33%, in line with FY16. Similar to what we have seen inNDP results, LMP saw: 1） a double-digit volume decline in CY2H17; 2） marketshare losses, although less marked; and 3）Finished goods inventory increase byyear-end.
Key results highlights as below:
Tota sales volume fel to 5.5mt in FY17 from 5.6mt in FY17, down 2%yoy, offset by strong growth in tissue paper. However, volumes weresignificantly lower in 2H17 with containerboard （2.56mt, down 10% yoy）and tissue （195kt, up 127% yoy）。 Similar to NDP, there were market sharelosses in containerboard and utilization rate for containerboard in FY17fel to 86% from 104% in FY16. Market share for LMP fel to 8.5% for 2H17（9.3% in 2H16）， the lowest it has seen since 2012. Reduced market sharewas an outcome of increased production halts, more containerboardimports overseas and new capacity additions by its competitors.
NP/t of HKD913/t for FY17 and HKD1,034/t for 2H17, of which HKD93/tand HKD104/t was VAT rebate. However, LMP's NP/t spread has shrunk toc.HKD600-700/t for containerboard in Jan and Feb by our estimates, whilemarket stil expects current dollar margin to sustain which is challengingto achieve, in our view.
SG&A increased 53% yoy mainly on the back of new tissue/paper millscompleted and more delivered goods. Separately, LMP recorded FX lossof RMB75mn likely due to RMB appreciation in 2017.
LMP did not announce further plans to add containerboard nor tissuepaper capacity but did raise its capex guidance from the target ofHKD1.4b to HKD2.6b for 2018.
Inventory rose to RMB4.9bn as of Dec-17, up 70% yoy and 44% HoH,which pushed up turnover days of finished goods to 19 days vs 6/3 daysrespectively in 1H17/2016. This trend is similar to NDP, whose inventorydays increased significantly to 27 days from 6 days in 1H17. Higherinventories for both is a reflection of the pricing sensitivity for end users,even after c.RMB2k/t price cut in Nov-17, which have opted to use moreimported containerboard when domestic containerboard prices are high.
Net debt remained largely stable at HKD12.8bn but net gearing ratioplunged 14ppt yoy to 59% due to the enlarged equity base after thesuper-profit this year. Tota financing cost decreased 14% yoy, as averagebank loan interest rate dropped but interest expense charged to incomestatement increased due to lower interest capitalization.
Operating cash flow increased by 13% yoy to RMB4.4bn in 2017 onstronger ASPs and LMP spent HKD234mn （2016:HKD199mn） in sharerepurchase in 2017, cancelling 33.2mn shares or 0.7% of average sharecount for the year.