CHINA PAPER LEADERS · NO.03
Why Is Lee & Man Paper Strong?
It Has Turned Cost Advantage into a System
Looking Beyond the “Low-Cost” Label to Examine the Raw Materials, Energy, Production Bases, Product Mix, and Capital Efficiency Behind Every Metric Ton of Paper
A genuine cost advantage does not come from buying one raw material cheaply or running one paper machine faster. It comes from organizing qualified fiber, energy and steam, equipment efficiency, logistics radius, product mix, and working capital simultaneously—making the full cost of every metric ton of qualified paper more controllable, margins more recoverable, and earnings more readily convertible into cash.
A public summary of the China Paper Association’s 2025 Annual Report on China’s Paper Industry shows that national paper and paperboard output increased 3.74% year over year in 2025, while consumption rose 1.80%, meaning supply continued to grow faster than demand. Lee & Man Paper ranked third among key papermaking enterprises by output. For a company centered on packaging paper, scale remains important, but the real basis of industry differentiation has shifted from “whether it can produce” to “whether it can preserve reasonable marginal profitability under weak demand, raw-material volatility, and heavy-asset constraints.”
In 2025, Lee & Man Paper recorded revenue of HK$26.642 billion, up 2.5% year over year, and profit for the year of HK$1.941 billion, up 43.0%. Profit attributable to ordinary shareholders was also approximately HK$1.941 billion, up 47.9%; the difference between the two growth rates mainly reflects approximately HK$45 million of 2024 profit attributable to holders of perpetual capital securities. Based on annual-report data, gross margin increased from approximately 11.97% to 14.62%, an improvement of 2.65 percentage points. External revenue from packaging paper grew only 0.4%, while corresponding segment profit increased approximately 65.5%. The combination of modest revenue growth and a pronounced release of profit elasticity is the first key to understanding Lee & Man Paper.
In July 2026, the company issued a positive profit alert: for the six months ended June 30, 2026, it expected profit of approximately HK$1.33 billion to HK$1.39 billion, representing growth of approximately 64% to 71% from HK$811 million in the prior-year period. The announcement attributed the increase primarily to higher marginal profit for the Group. The company subsequently announced that its board would meet on August 3 to consider the interim results; as of this article’s verification date of August 9, 2026, no formal interim-results announcement had been found in searchable HKEX disclosures. This signal should therefore still be treated as a preliminary estimate based on unaudited management accounts and cannot substitute for full data on revenue, sales volume, profit per metric ton of paper, and cash flow.
This article therefore does not equate “profit growth” directly with “every capability becoming stronger.” Instead, it asks a more industrially relevant question: how does Lee & Man Paper connect raw-material procurement, pulp-and-paper integration, energy and environmental infrastructure, cross-regional production bases, tissue paper, and capital discipline into a system that jointly influences cost per metric ton and marginal profit?
FOUR NUMBERS · Four Key Figures
HK$26.642 Billion 2025 Revenue | HK$1.941 Billion 2025 Profit Attributable to Ordinary Shareholders |
14.62% 2025 Gross Margin | HK$1.33–1.39 Billion Estimated Profit for the First Half of 2026 |
Scope note: HK$1.941 billion is stated on the basis of profit attributable to ordinary shareholders; on the consolidated income statement’s “profit for the year” basis, the year-over-year increase was 43.0%. Gross margin and its change are calculated from annual-report data. First-half 2026 data are from a positive profit alert and are preliminary and unaudited; as of the verification date of August 9, 2026, no formal interim-results announcement had been found.
EVIDENCE LEVEL · Three Types of Evidence
Results Achieved: 2025 revenue, profit, segment performance, debt, and cash flow are drawn from the audited annual report.
Preliminary Operating Signal: The first-half 2026 profit range comes from a positive profit alert and cannot yet be broken down into volume, price, cost, and cash contributions.
Planning and Construction Indicators: The PM7 technical upgrade, the Guigang project, and future technology deployment are not counted as existing capacity or realized performance.
ONE SENTENCE · Lee & Man Paper in One Sentence
Lee & Man Paper’s real strength is not that “one cost item is lower,” but that it links fiber, pulp, energy, paper machines, production bases, products, and capital—turning low cost from a temporary outcome into an ability to adjust continuously. This does not mean it has the industry’s lowest absolute cost in every period or for every product grade.
CORE JUDGMENT
Bottom Line First: Lee & Man Paper’s Strength Lies in Its “System-Level Cost Capability”
Lee & Man Paper’s competitiveness can be divided into six interlocking control dimensions:
Full-Cost Management: Managing every metric ton of qualified paper rather than comparing only recovered-paper or wood-pulp purchase prices
Pulp-and-Paper Optionality: Dynamically seeking a better mix among captive pulp, market pulp, and recovered fiber
Energy Infrastructure: Integrating steam, electricity, solid-waste treatment, and carbon constraints into one engineering system
Networked Production Bases: Reshaping supply radii and risk boundaries through core Chinese markets and Southeast Asian production bases
Product Portfolio: Using packaging paper as the operating foundation while tissue paper and wood pulp reshape the profit mix
Capital Discipline: Subjecting technical upgrades, debt, inventory, and cash flow to a common return-on-investment test
01 · FULL COST SYSTEM
Layer One: Cost Is Not the Purchase Price, but the Total Outcome of One Metric Ton of Qualified Paper
The most common mistake made by packaging-paper producers is to equate low cost with cheap recovered paper, lower coal prices, or large paper machines. True competitiveness is determined by the full cost of converting incoming raw materials—through sorting, pulping, stock preparation, papermaking, sizing, drying, rewinding, and transportation—into qualified products ready for delivery.
Cost Formula
Full Cost per Metric Ton of Qualified Paper = Delivered Cost of Qualified Fiber + Energy and Steam + Chemicals + Process Losses and Yield + Depreciation and Maintenance + Logistics + Inventory and Working-Capital Costs.
In 2025, the packaging-paper segment generated external revenue of HK$20.178 billion, up only 0.4% year over year, while segment profit increased from HK$766 million to HK$1.268 billion, a rise of approximately 65.5%. On this basis, segment profit as a percentage of external packaging-paper revenue increased from approximately 3.81% to 6.29%. “Segment profit” is not equivalent to gross profit or net profit, and publicly disclosed segment data are insufficient to attribute the improvement precisely among selling prices, raw materials, product mix, and manufacturing efficiency. At a minimum, however, the figures show that the profit recovery cannot be explained by revenue expansion alone and that marginal conditions in the packaging-paper business changed materially.
The company disclosed net profit per metric ton of HK$257 for 2025. The value of this figure lies not in an isolated high-or-low comparison, but in showing the sensitivity of profit to cost per metric ton, selling prices, and product mix: for a company producing several million metric tons, a sustained improvement of several tens of HK dollars per metric ton can translate into profit on the scale of hundreds of millions of HK dollars.
Lee & Man Paper’s cost capability should not be interpreted as “always having the lowest cost.” A more accurate description is that it has established multiple continuously adjustable cost levers, giving it a basis for restoring marginal profitability more quickly when industry prices and raw-material conditions change.
02 · PULP OPTIONALITY
Layer Two: The Value of Pulp-and-Paper Integration Is Not Maximizing Self-Sufficiency
A simple aggregation of the eight production bases listed in the 2025 annual report indicates annual capacity of approximately 7.58 million metric tons of paper and paper products, 950,000 metric tons of wood pulp, and 1.2 million metric tons of tissue paper. Designed capacity is not actual output, but this structure shows that Lee & Man Paper’s wood-pulp operations are not an isolated external-sales business; they are an important raw-material platform for packaging paper and tissue paper.
In 2025, external revenue from the wood-pulp segment declined 32.6% to HK$447 million, while intersegment sales still reached HK$1.913 billion. Looking only at external wood-pulp revenue therefore understates its contribution to internal supply stability, pulp furnish design, and industrial-chain profitability. A pulp mill’s strategic value often lies in internal substitution and risk buffering, not merely in external pulp sales.
But “having captive pulp” does not automatically mean “having the lowest pulp cost.” Captive pulp still bears delivered wood-chip costs, yield, chemicals, energy, depreciation, operating-rate, and logistics costs. Professional pulp-and-paper integration should enable dynamic choices among captive pulp, purchased market pulp, and recovered fiber based on price differentials, fiber strength, cleanliness, paper-machine compatibility, and customer quality requirements.
Lee & Man Paper’s annual report describes a strategy consistent with this balance: continuing to enhance vertical integration while optimizing pulp-line equipment and processes, and reducing exposure to raw-material price volatility through a combination of internal production and external procurement. Its moat is not closed-loop self-sufficiency, but a broader set of raw-material pathways and stronger switching capability.
Professional Judgment
The most valuable measure of pulp-and-paper integration is not the pulp self-sufficiency ratio alone, but “qualified-fiber optionality”: whether the company can continuously select a fiber mix with a lower full cost and lower supply risk without compromising quality.
03 · ENERGY INFRASTRUCTURE
Layer Three: Energy and Environmental Management Are Part of the Manufacturing System, Not Back-Office Costs
Paper machines require continuous, stable supplies of electricity and steam, while recovered-paper pulping generates plastic contaminants, pulp rejects, and sludge. For a large packaging-paper producer, energy prices, generating-unit efficiency, solid-waste disposal pathways, and environmental compliance are not four separate matters; together, they form an infrastructure network that affects both cost per metric ton and production continuity.
Lee & Man Paper’s 2025 annual report states that the Group’s comprehensive energy consumption was below 0.34 metric tons of standard coal equivalent per metric ton of paper and that more than 80% of production water was recycled. These figures follow the company’s ESG reporting scope, but they help explain why energy management is an important component of its cost system: sustained reductions in unit consumption directly affect a paper machine’s ability to withstand low-price competition.
The energy recovery of solid waste deserves particular attention. A 1,000-metric-ton-per-day solid-waste incineration line at Chongqing Lee & Man commenced operation in 2024. The annual report states that in 2025 it generated 116.418 million kWh of electricity and produced 1.039 million metric tons of high-pressure steam, while reducing raw-coal consumption by 44,900 metric tons and solid-waste discharge by 128,700 metric tons. These are disclosed annual operating results, not project-planning figures.
The comprehensive waste-to-energy projects at the Guangdong and Malaysia production bases disclosed investments of RMB 350 million and RMB 300 million, respectively, together with their designed benefits. They convert waste residue, waste plastics, pulp rejects, sludge, and biogas into steam and electricity, theoretically reducing both purchased-energy requirements and end-of-pipe disposal pressure. Project economics must still account for investment, depreciation, operations and maintenance, emissions control, and fluctuations in feedstock heating value.
Lee & Man Paper’s energy advantage does not mean that “environmental protection has no cost.” Rather, through combined heat and power, solid-waste energy recovery, energy-efficiency upgrades, and process control, it seeks to convert previously fragmented energy-procurement, waste-disposal, and compliance expenses into system costs that are more manageable and, where possible, recoverable.
04 · SUPPLY RADIUS
Layer Four: Eight Production Bases Are Not a Scale Collage, but a Supply-Radius Design
Packaging paper has relatively modest value per unit, is bulky, and is highly sensitive to transportation distance; logistics for both raw materials and finished products therefore materially affect delivered cost and customer responsiveness. Lee & Man Paper’s annual report lists eight production bases—Dongguan, Jiangsu, Guangdong, Chongqing, Jiangxi, Vietnam, Malaysia, and Chongzuo in Guangxi—forming an interconnected manufacturing network across South China, East China, Southwest China, Central China, and Southeast Asia.
The domestic production bases are close to packaging consumption, corrugated-box converting, and manufacturing customers in China; Chongqing, Jiangxi, and Guangxi also provide different support points for pulp, tissue paper, and regional markets. The Vietnam and Malaysia bases together list approximately 1.95 million metric tons of annual paper and paper-products capacity, enabling Lee & Man Paper to serve Southeast Asia from more than its Chinese factories and providing a second supply radius under different raw-material, trade, and market environments.
In 2025, approximately 84% of Lee & Man Paper’s revenue came from external customers in China, compared with approximately 89% in the prior year; the remainder came mainly from customers in Malaysia and Vietnam. The rising share of overseas revenue signals that regional production bases are beginning to translate into a market structure, but it also introduces management complexity involving cross-border procurement, foreign exchange, quality consistency, production-sales coordination, and local policy.
More production bases do not automatically make a company stronger. The key to network capability is whether every base can secure suitable raw materials, maintain stable operating rates, reach economically viable customers, and reduce duplicate inventories and cross-regional backhauls. A production-base network forms a genuine cost moat only when gains in market responsiveness and logistics exceed organizational complexity.
The Metrics That Truly Define a Network
Evaluating a production-base layout requires more than counting factories and capacity. It also requires examining delivered raw-material costs, finished-product distribution radius, regional production-to-sales ratios, inter-base transfers, customer delivery cycles, and return on invested capital at each base.
05 · PROFIT MIX
Layer Five: Packaging Paper Is the Foundation, While Tissue Paper Is Reshaping the Profit Mix
In 2025, packaging paper contributed 75.7% of Lee & Man Paper’s external revenue and remained its absolute core. Tissue-paper revenue was HK$6.017 billion, up 15.1% year over year, representing 22.6% of external revenue; external wood-pulp revenue accounted for approximately 1.7%. By revenue structure, Lee & Man Paper remains a company built on packaging grades such as linerboard and corrugating medium.
The profit structure, however, is no longer identical to the revenue structure. Tissue-paper segment profit reached HK$1.063 billion, up 12.9% year over year and representing approximately 43.7% of aggregate profit across the three segments, based on annual-report data; packaging paper accounted for approximately 52.2%. Tissue paper generated more than 40% of segment profit on less than one-quarter of revenue, showing that it is no longer a peripheral business but an important pillar of Lee & Man Paper’s profit portfolio.
Tissue paper has different demand patterns, brand channels, and price-formation mechanisms from industrial packaging paper and can reduce exposure to a single packaging-paper cycle. Packaging paper provides the foundation for scale manufacturing, customer networks, and cash turnover, while wood pulp supplies fiber internally. Together, the three form a portfolio combining “industrial-product scale + consumer-product value + upstream raw materials.”
A portfolio does not provide an automatic hedge. In 2025, tissue-paper segment profit grew more slowly than revenue. Based on annual-report data, segment profit as a percentage of external revenue edged down from approximately 18.01% to 17.66%. Consumer businesses must also bear the requirements of branding, channels, promotion, finished-goods inventory, and quality consistency, so long-term competitiveness cannot be explained by capacity expansion alone.
The advantage of Lee & Man Paper’s product structure is not that “more businesses are always safer,” but whether different businesses can share pulp, energy, manufacturing, and supply-chain capabilities while preserving their own customer value and returns on capital.
06 · CAPITAL DISCIPLINE
Layer Six: Technical Upgrades and Capital Discipline Must Generate Higher Returns from Every Metric Ton
Public filing and environmental-assessment information in 2026 indicates that Guangdong Lee & Man plans to invest RMB 720 million in an in-situ technical upgrade of its PM7 line, with a filing-period construction schedule from June 2026 to June 2027. According to an industry summary of publicly available environmental-impact-assessment application materials, capacity would remain at 300,000 metric tons per year before and after the upgrade, while the proposed basis-weight range would shift from 120–250 g/m² to 60–160 g/m². The project would also upgrade systems including machine width, operating speed, stock screening, the headbox, and film-transfer sizing. These items are project plans, not realized upgrade results.
The most important feature of this kind of project is that “capacity remains unchanged.” Rather than pursuing growth through additional nominal tonnage, it seeks to improve product fit and asset output per metric ton through lower basis weight, higher quality, greater efficiency, and lower energy consumption. If customers can reduce packaging-paper basis weight while meeting compression-strength, burst-strength, ring-crush, and converting requirements, value may shift from “price per metric ton” to “material cost and performance per box.”
The capital position also improved. In 2025, Lee & Man Paper’s total finance costs, including capitalized amounts, declined from HK$935 million to HK$736 million; bank borrowings fell from HK$21.982 billion to HK$21.006 billion; the net gearing ratio, as defined in the annual report, decreased from 0.73 to 0.63; and net cash generated from operating activities rose from HK$426 million to HK$3.520 billion.
Cash-flow improvement cannot be assessed from one headline figure alone. In 2025, operating cash flow before changes in working capital was HK$2.673 billion, up approximately 24.8% year over year. Final operating cash flow was also supported by a HK$952 million decrease in inventories, a HK$162 million decrease in receivables and prepayments, and a HK$674 million increase in accounts payable as presented in the cash-flow statement. Collections improved, with trade-receivable turnover days shortening from 47 to 41 days.
One distinction is particularly important: the “HK$952 million decrease in inventories” shown in the cash-flow statement cannot be interpreted directly as a decline in the period-end inventory balance; inventory on the balance sheet actually increased from HK$4.419 billion to HK$4.822 billion. Public financial statements do not fully disaggregate the bridging factors between the two measures. At the same time, raw-material and finished-goods inventory turnover days increased from 54 and 14 days to 60 and 18 days, respectively, while accounts-payable turnover days extended from 43 to 61 days. This indicates that part of the cash-flow improvement coincided with slower inventory turnover and longer supplier payment terms.
Together, these figures support a more complete judgment:
Lee & Man Paper’s profitability, debt position, and cash position are improving, but raw-material and finished-goods inventory efficiency, supplier payment terms, and returns from technical upgrades still require continued observation. Genuine capital discipline means simultaneous improvement in margins, inventory, payables, debt, and free cash flow—not reliance on any single indicator.
2026 CHANGE SIGNALS
Six Recent Developments Are Redefining Lee & Man Paper’s Cost Boundaries
March 2026 | Profit Recovery Confirmed by the Annual Report
2025 revenue increased 2.5%, while profit attributable to ordinary shareholders rose 47.9% (profit for the year increased 43.0%). The packaging-paper segment significantly restored profit while revenue remained broadly flat, indicating at a minimum that the operating improvement cannot be explained by scale expansion alone. The contribution of individual factors still requires more granular volume, price, and cost data.
March–July 2026 | PM7 Shifts from “More Tons” to “Better Tons”
The RMB 720 million technical upgrade would keep annual capacity unchanged at 300,000 metric tons while shifting toward lower-basis-weight, high-grade kraft linerboard and upgrading stock preparation, papermaking, and automatic-control systems. The project is currently at the filing and public environmental-assessment stage and cannot be described in advance as completed.
2026 Operating Direction | Automation and Artificial Intelligence Enter Manufacturing Processes
In its annual report, the company states that it will actively deploy automation, artificial intelligence, and other technologies to optimize production processes and workflows and advance power-station technology upgrades. This shows that smart manufacturing has entered its cost-reduction framework, but quantified results in cycle time, energy consumption, quality, and labor efficiency are still needed.
May–June 2026 | Guigang Project Enters Equipment Installation
Public information from Guigang indicates that the “Guigang Lee & Man Paper Project” has planned total investment of RMB 27.5 billion. Phase I has planned investment of RMB 10 billion for 1 million metric tons of bleached chemical pulp and 800,000 metric tons of high-grade tissue paper and related products; Phase II has planned investment of RMB 17.5 billion for bio-based, biodegradable high-end new materials. Equipment installation for Phase I began in May, with production expected in mid-2027. The project is not among the eight production bases listed in Lee & Man Paper’s 2025 annual report, so this article does not include the planned capacity in the listed company’s existing capacity. Formal disclosure is still needed to confirm how the project’s investment, assets, and earnings would be included in the listed company’s consolidated reporting scope.
July 2026 | Marginal Profit Continues to Rise in the First Half
The positive profit alert forecasts a 64% to 71% year-over-year increase in first-half profit, explicitly attributing the increase to higher marginal profit. The company announced that its board would meet on August 3 to consider the interim results; as of this article’s verification date of August 9, no formal results announcement had been found. Subsequent results must establish whether the improvement came from selling prices, raw materials, product mix, output, expenses, or a combination of factors.
2026–2028 | Overseas Sales Interfaces Become More Institutionalized
A continuing connected-transaction announcement sets annual caps under the packaging-paper agreement for 2026, 2027, and 2028 at HK$279.8 million, HK$542.3 million, and HK$569.4 million, respectively. Transactions will be conducted through individual orders, and neither party is subject to an exclusive-dealing obligation. The annual caps are not secured orders, sales commitments, or revenue forecasts. Their value lies in providing an institutionalized interface for overseas sales and leveraging the cost and location advantages of the Malaysia and Vietnam production bases—not in recognizing revenue in advance.
CONCLUSION
Cost Optimization Is the Objective;
System-Level Control Is the Capability
Lee & Man Paper’s true strength does not lie in having a permanently fixed lowest cost, but in breaking cost into manageable variables: how fiber is selected, where pulp comes from, how energy is recovered, how far production bases reach, how products are combined, how paper machines are upgraded, and how capital turns over.
When these variables work together, a modest change in revenue can release much greater profit elasticity. When one link becomes unbalanced, the operating load of pulp mills, energy facilities, overseas production bases, tissue-paper channels, and inventory capital can simultaneously amplify complexity. This is the real boundary where “system advantage” and “heavy-asset risk” coexist.
Five questions will determine whether Lee & Man Paper can continue to strengthen:
Will the 2026 interim profit forecast translate into simultaneous improvements in sales volume, profit per metric ton of paper, and operating cash flow?
Can the PM7 upgrade achieve its quality-consistency, customer-qualification, and energy-consumption targets for lower-basis-weight products?
Can tissue paper maintain its high profit contribution without erosion from channel expenses and inventory?
Can the overseas production bases and the Guigang-related project generate clear market, capital, and consolidated-reporting returns?
As debt declines, can raw-material inventory, finished-goods inventory, and supplier payment terms return together to more favorable levels?
Lee & Man Paper’s deepest competitiveness lies in turning “cheap” into an engineering system, cost into controllable variables, and controllable cost into profit resilience and market optionality.
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BIOTEN Packaging · Industry Insights · Research Notes
China Paper Association, 2025 Annual Report on China’s Paper Industry: Industry Operations and Key Enterprise Information
Lee & Man Paper 2025 Annual Report: Original HKEX Disclosure
Lee & Man Paper 2026 Interim Positive Profit Alert: Original HKEX Disclosure
Lee & Man Paper Notice of Board Meeting for the 2026 Interim Results: Original HKEX Disclosure
Lee & Man Paper Production Bases and Capacity Layout: Company Website
Guangdong Lee & Man PM7 Production-Line Technical-Upgrade Filing: Summary from the Guangdong Online Investment Project Approval and Supervision Platform
Public-Participation Notice for the Guangdong Lee & Man PM7 Environmental Impact Report: Technical Summary from the Original Page of the Dongguan Environmental Protection Industry Association
Construction Progress of the Guigang Lee & Man Paper Project: Guigang Daily · Guigang News Network
2026–2028 Packaging-Paper Agreement: Original HKEX Disclosure
This article is provided for industry research and general informational purposes only and does not constitute investment, business, or legal advice. Its analysis of corporate strategy, competitiveness, and industry opportunities contains professional judgments based on publicly available information, does not represent official statements by the company, and does not imply any cooperation or product-adoption relationship. 2025 data are from the audited annual report; the 2026 interim profit forecast consists of preliminary unaudited data. Designed capacity, planned investment, filing, environmental assessment, equipment installation, and expected commissioning dates do not equal actual output, effective capacity, completed commissioning, or commercial returns. The Guigang project is a locally disclosed project development and is not among the eight production bases listed in Lee & Man Paper’s 2025 annual report. Available public information is insufficient to confirm how all of its investment, assets, and earnings would be included in the consolidated reporting scope of the Hong Kong-listed company. Companies should conduct further verification based on formal announcements, project approvals, actual commissioning, and specific application requirements. Information verified through August 9, 2026.
