Top Bear Market Investment: Lee and Man Paper Manufacturing Limited (HKG:2314)

Lee and Man Paper Manufacturing Limited is a financially healthy and robust stock with a proven track record of outperformance. We all know Lee and Man Paper Manufacturing, and having this large-cap to cushion your portfolio during a volatile period in the stock market isn’t a bad idea. Today I will give a high-level overview of the stock, and why I believe it’s still attractive.

Check out our latest analysis for Lee and Man Paper Manufacturing

Lee and Man Paper Manufacturing Limited, an investment holding company, manufactures and trades in packaging papers, pulps, and tissue papers in the People’s Republic of China and Vietnam. Formed in 1994, and headed by CEO Man Bun Lee, the company employs 7.70k people and with the market cap of HK$31b, it falls under the mid-cap stocks category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.

SEHK:2314 Historical Debt December 12th 18
SEHK:2314 Historical Debt December 12th 18

With HK$16b debt on its books, Lee and Man Paper Manufacturing has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. With an interest coverage ratio of 33.45x, Lee and Man Paper Manufacturing produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Furthermore, its cash flows from operations copiously covers it debt by 24%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning 2314’s financial strength will continue to let it thrive in a fickle market.

SEHK:2314 Income Statement Export December 12th 18
SEHK:2314 Income Statement Export December 12th 18

2314’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 28%, outpacing the industry growth rate of 16%. It has also returned an ROE of 24% recently, above the industry return of 8.0%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in Lee and Man Paper Manufacturing as an investment over the long run.

Next Steps:

Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. Lee and Man Paper Manufacturing tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
  1. Future Outlook: What are well-informed industry analysts predicting for 2314’s future growth? Take a look at our free research report of analyst consensus for 2314’s outlook.
  2. Valuation: What is 2314 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 2314 is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.