Liwen Chemical (00746.HK) balances offense and defense, with caustic soda as its cash cow supporting dividends, and fluorochemicals expanding growth space.
Hong Kong stocks have been fluctuating recently, with capital reallocating between high-growth and stable-income assets. While the AI and chip sectors are attracting attention, some funds are also turning to targets that combine high dividends with growth potential. Liwen Chemical (00746.HK) $L & M CHEMICAL(00746.HK) is demonstrating this dual investment characteristic of offense and defense: its caustic soda business provides stable cash flow, supporting a dividend yield of about 7.5%; its fluorochemical products are deeply embedded in the AI and new energy supply chains, adding growth potential for future performance.
For the 2025 fiscal year, the company's earnings per share were 67.7 cents, with a total annual dividend per share of 33.5 cents, representing a payout ratio of about 50%. Based on the closing price of HK$4.4 as of July 10, 2026, its P/E ratio is about 6 times, indicating a relatively low valuation level.
The foundation for the company's stable dividend distribution comes from the cash cow formed by its caustic soda business. In the year, chemical business revenue was about RMB 3.75 billion, of which caustic soda revenue was RMB 1.68 billion, accounting for over forty percent. Caustic soda is a basic chemical product with relatively stable demand, and the business continuously generates operating cash flow, supporting operations and capital expenditures, and laying the groundwork for shareholder returns.
It is worth noting that the company has maintained a dividend policy distributing about fifty percent of its profits for many years. About half of the profits are used to reward shareholders, and the other half is retained for business reinvestment and financial optimization. There is room for further dividend increases, and structurally, this is more robust than a simple high-dividend policy.
Beyond basic chemical products, the company has in recent years focused on the high-end fluorochemical materials field. Product applications cover electric vehicle battery cooling systems, data center cable insulation materials, and new energy battery additives. With the ongoing development of new energy and data center infrastructure, demand for related high-end fluoromaterials continues to rise, and their revenue contribution and profitability are expected to gradually materialize. With the interim results (expected to be announced in early August), the market will have a chance to understand the scale of these businesses more clearly—investors interested in tracking the AI infrastructure and new energy materials sectors may want to add it to their watchlist.
Furthermore, industry policies have built a moat around the fluorochemical-related business. Refrigerants for cooling have been included in the national production quota management system, with new capacity restricted and supply contracting in an orderly manner. Upstream raw material manufacturers like Liwen Chemical, which have compliant qualifications and stable capacity, will benefit from the industry's structural improvement, enhancing business stability.
As of the end of last year, the company's net debt/equity ratio was about 5.5%, indicating a low leverage level. This shows that the company's dividends are not reliant on borrowing or asset sales but on solid operating cash flow. Among Hong Kong's high-dividend stocks, companies that simultaneously feature low debt and stable dividend payouts are rare.
The company's current market capitalization is about HK$3.6 billion. As of July 10, 2026, its price-to-book ratio is about 0.6 times, with the overall valuation level in a relatively low range. The stable cash flow and dividend policy provide some support for the valuation. As the market gradually re-evaluates the positioning and growth attributes of its new fluorochemical materials business, there may be room for a valuation re-rating.
Overall, dividends are just the first entry point for understanding Liwen Chemical. Supporting these dividends is the stable cash flow from the caustic soda business. Beyond caustic soda, the company has already established a sizable business foundation in three high-growth areas: AI data center cable materials, new energy battery additives, and upstream raw materials for quota-protected fluorocarbon refrigerants. The market currently still prices it within the framework of a traditional caustic soda plant. If the data disclosed in the interim results allow the market to more clearly understand the actual contribution of these three areas to overall revenue, the current valuation framework may need to be re-examined. And caustic soda is precisely the most basic layer of this company.
Written by: Professor Li Huifen, Greater Bay Area Family Office Association
(The author does not hold the above stocks)
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