To remember part of the replacement test, use parentheses. To refer to the first pair of parentheses, use \1:

sed 's/03:\(..\)PM/15:\1PM/g'

In fact, you can make both the : and PM part of the capture group:

sed 's/03\(:..PM\)/15\1/g'

Using sed

$ sed '/[0-9:]*[AP]M/s/^[^:]*/15/' <<< $line
15:23PM

Or using @dawg solution to handle multiple ranges

sed "/PM/s/^[^:]*/echo \$((&+12))/e" <<< $line
15:23PM

I would use awk so you are getting actual addition and can detect AM vs PM:

echo '03:23PM
11:33PM
03:23AM' | awk 'BEGIN{FS=OFS=":"} /PM/ && $1<12 {$1=$1+12} 1'

Prints:

15:23PM
23:33PM
03:23AM