Citigroup has issued a research report indicating that Lee & Man Paper's (02314) annual performance surpassed the bank's expectations, both in terms of revenue and net profit, and aligned with the median guidance of HK$1.94 billion provided in its profit alert announcement. Consequently, the bank has raised its profit forecasts for the company for the current and next fiscal years by 12% to 13%, while also introducing a new forecast for 2028. Key drivers for 2026 highlighted by the bank include moderate capacity expansion in China and ASEAN, expectations for domestic consumption stimulus measures in China, and the potential for continued gross margin expansion in 2026. The "Buy" rating on the stock is maintained. The target price has been increased from HK$4.2 to HK$4.3, based on a projected 2026 price-to-book ratio of approximately 0.6 times and a price-to-earnings ratio of around 9 times. The dividend payout ratio for 2026 is forecasted to be between 4% and 5%. Citigroup believes more paper manufacturers may establish pulp production facilities this year to develop a vertically integrated model, thereby enhancing profitability. However, this could also introduce potential downside risks to profit margins across the industry. Furthermore, should the Chinese government implement consumption stimulus measures, it would benefit the demand for Lee & Man Paper's packaging paper and its profitability. An improvement in the competitive landscape is also expected to potentially lead to a further increase in the company's operating margin this year.