- Consumer Sector-Household Products Equity Research 股票研究 Company Report: 公司报告 : 恒安国际 (144 HK) Barney Wu 吴宇扬 (86755) 2397 668 wuyuyang@gtjas.com 公 司 报 告 证 券 研 究 报 告 消费行业 日用品 Equity Research Report Company Report A Fresh Start in 218 as Amoeba Model is on Track 阿米巴模式步入正轨,218 年迎来全新开始 Hengan s 217 results were basically in line with expectations. The Company s 217 revenue rose 2.8% YoY to RMB 19,825 million, mainly driven by sanitary napkins and tissue paper growth, up 6.1% YoY and 3.6% YoY, respectively. In 2H17 Hengan s revenue growth rate increased by 6. ppt HoH to 5.1% YoY. Hengan s 217 gross margin declined significantly, down 1.9 ppt YoY to 46.9%, mainly because of rising wood pulp price. Due to the fall of SG&A to sales ratio, net exchange gain and higher interest income, Hengan s recurring shareholders profit rose by 9.3% YoY to RMB 3,794 million in 217. Profitability still hurts under high input costs but top-line growth will expand further. In 218, high wood pulp prices are still the major threat for Hengan s gross margin, but the Company probably will not raise ex-factory prices of tissue paper in order to hold market share. Hengan s sales of tissue paper are expected to expand strongly in 218. The Company is enriching its products portfolio of napkins in mature female market and looking for opportunities in personal hygiene market. So as to maintain healthy profitability, Hengan will reduce the sales of low-gross-margin products and improve operating efficiency. We slightly revised down earnings forecasts, but we are still bullish on Hengan as the foundations of the Company are solid. We expect that the operation of Hengan and Amoeba teams will go smoothly in 218 and the online channel will contribute more profit. We believe that Hengan s current valuation is attractive and the market is overlooking Hengan s long term earnings growth. Therefore, we lower TP to HK$88. but upgrade the Company s rating to Buy. The new TP represents 21.1x 218 PER,19.4x 219 PER, and 17.9x 22 PER. 恒安 217 年业绩大致符合预期 公司 217 年收入同比上涨 2.8% 至人民币 19,825 百万, 主 要受到卫生巾和纸巾增长所带动, 其分别同比上升 6.1% 和 3.6% 217 年下半年恒安收入增 速加快, 相比上半年加快 6. 个百分点至 5.1% 恒安 217 年毛利率下降显著, 同比下降 1.9 个百分点至 46.9%, 主要因为上涨的木浆价格 因为销售费用和管理费用占比下降, 净汇兑 收益和更高的利息收入,217 年恒安持续经营股东净利同比上涨 9.3% 至人民币 3,794 百万 盈利能力因高企的原材料价格受损但收入增长将会进一步放大 218 年高企的木浆价格仍然 是恒安毛利率最主要的威胁, 但为了获取更多的市场份额, 公司可能不会上调纸巾的出厂价 恒安纸巾销售预计在 218 年录得强劲增长 公司正在丰富其在成熟女性市场的产品结构, 并 在个人卫生用品市场寻求新的机会 为了维持健康的盈利水平, 恒安将会削减低毛利率产品 的销售并改善经营效率 我们小幅下调盈利预测, 但因为公司基本面良好, 我们仍然看好恒安 我们预计恒安和阿米巴 团队的经营会在 218 年更加顺畅, 线上渠道将会贡献更多利润 我们相信恒安目前的估值吸 引, 并且市场忽视了恒安长期的盈利增长 因此, 我们下调目标价至 88. 港币但上调公司 评级至 买入 新目标价相当于 21.1 倍,19.4 倍和 17.9 倍 218 年,219 年和 22 年市 Rating: Buy Upgraded 评级 : 买入 ( 上调 ) 6-18m TP 目标价 : HK$88. Revised from 原目标价 : HK$9. Share price 股价 : Stock performance 股价表现 [Table_PriceChange] Change in Share Price HK$71.5 盈率 [Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 股价变动 Abs. % 绝对变动 % Rel. % to HS Index 相对恒指变动 % Avg. Share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 Source: Bloomberg, Guotai Junan International. 3 M 3 个月 1 Y 1 年 (7.5) (16.) 19.5 (3.7) (18.5) (5.) 76. 77.7 68. 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 6. 5. 4. 3. 2. 1.. (1.) % of return (2.) Jun-17 Dec-17 Mar-18 HSI Hengan International 中恒外安运国输际 216A 19,277 3,597 2.967 11.1 21.6 12.223 5.2 1.95 3. 24.4 217F 19,825 3,794 3.149 6.1 18.4 13.353 4.3 2.1 3.6 24.6 218F 21,494 4,1 3.399 7.9 17. 14.84 3.9 2.29 3.8 24.1 219F 22,669 4,433 3.676 8.1 15.8 16.22 3.6 2.389 4.1 23.7 22F 23,789 4,794 3.975 8.1 14.6 17.86 3.3 2.584 4.5 23.4 [Table_BaseData] Shares in issue (m) 总股数 (m) 1,26.2 Major shareholder 大股东 Mr.Sze and Mr.Hui 39.5% Market cap. (HK$ m) 市值 (HK$ m) 86,243.3 Free float (%) 自由流通比率 (%) 6.5 3 month average vol. 3 个月平均成交股数 ( ) 3,917.7 FY18 Net gearing (%) FY18 净负债 / 股东资金 (%) Net Cash 52 Weeks high/low (HK$) 52 周高 / 低 (HK$) 88.7 / 52.8 FY18 Est. NAV (HK$) FY18 每股估值 ( 港元 ) 89. Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 1
Hengan International 217 Annual Results Review Revenue growth expanded further in 2H17. Hengan International ( Hengan or the Company )'s 217 revenue rose 2.8% YoY to RMB 19,825 million, mainly driven by sanitary napkins and tissue paper. In 217, Hengan s sanitary napkins sales and tissue paper sales rose by 6.1% YoY and 3.6% YoY, respectively, while diapers sales declined by 7.% YoY, better than the 12.7% decline in 216. In 2H17 Hengan s revenue growth rate increased by 6. ppt HoH from -.2% in 1H17 to 5.1% YoY mainly due to the significant improvement in the sales of tissue paper, which rose by 7.1% YoY, but the sanitary napkins sales growth slightly slowed down in 2H17, up 5.1%. The Company s online sales achieved strong growth in 217, up more than 8% YoY to RMB2. billion. Gross margin retreated considerably. In 217, Hengan s gross margin declined significantly, down 1.9 ppt YoY to 46.9%, mainly because the rising wood pulp prices led to a significant drop in the gross margin of tissue paper, down 5. ppt YoY to 32.9%. In 2H17 the gross margin of tissue paper declined even more, down 7.5 ppt YoY to 3.6%, which caused the company's 2H17 gross margin to drop by 4.1 ppt YoY. The gross margins of sanitary napkins and diapers in 217 have also showed different degrees of decline, down.4 ppt and 3.9 ppt YoY, as some petrochemical products prices, such as superabsorbent polymer, increased. Net profit was in line with expectations. Due to the effective control of distribution costs and staff costs after the company transformed to the Amoeba model, the Company s SG&A to sales ratio fell.9 ppt YoY to 26.1%. As RMB to USD exchange rate went up significantly in 217, Hengan recorded a net exchange gain of RMB98.5 million in 217, much better than a net exchange loss of RMB141.6 million in 216. Together with the rise in interest income from bank time deposits, Hengan s recurring shareholders profit rose by 9.3% YoY to RMB 3,794 million in 217, basically in line with expectations. Despite that Hengan s top-line growth expanded in 2H17, the Company s recurring shareholders profit growth in 2H17 shrunk, which recorded 5.1% YoY, due the significant decrease in gross margin. Table-1: Hengan s 217 Annual Results Review Income Statement 216 217 YoY 2H16 2H17 YoY Revenue 19,277 19,825 2.8% 9,7 1,262 5.8% COGS (9,873) (1,526) 6.6% (4,95) (5,614) 14.5% Gross profit 9,44 9,299-1.1% 4,795 4,648-3.1% Distribution costs (3,721) (3,891) 4.6% (1,823) (2,34) 11.5% Administrative expenses (1,483) (1,292) -12.9% (89) (686) -15.2% Other income and other gains 543 1,156 112.8% 279 726 16.4% Operating profit 4,743 5,272 11.1% 2,441 2,655 8.7% Finance income 176 94-46.9% 124 21-83.5% Finance costs (36) (45) 12.3% (125) (17) 36.5% Profit before income tax 4,559 4,961 8.8% 2,441 2,55 2.6% Income tax (1,79) (1,159) 7.4% (592) (559) -5.7% Profit from continuing operations 3,48 3,81 9.3% 1,849 1,947 5.3% Discontinued profit 282-1.% 267-1.% Profit for the year 3,761 3,81 1.1% 2,116 1,947-8.% Non-controlling interests (165) (7) -95.5% (154) (6) -95.8% Shareholders' profit 3,597 3,794 5.5% 1,962 1,94-1.1% Discontinued shareholders' profit 125 118 Recurring shareholders' profit 3,472 3,794 9.3% 1,844 1,939 5.1% Recurring EPS (RMB) 2.864 3.149 1.% 1.535 1.61 4.9% Source: the Company, Guotai Junan International. See the last page for disclaimer Page 2 of 1
Table-2: Hengan s Segment Results Breakdown Segment Revenue 216 217 YoY 216 217 YoY Revenue Revenue contribution Sanitary Napkins 6,569 6,972 6.1% Sanitary Napkins 34.1% 35.2% 1.1 ppt Disposable Diapers 2,15 1,999-7.% Disposable Diapers 11.2% 1.1% -1.1 ppt Tissue Paper 9,66 9,39 3.6% Tissue Paper 47.% 47.4%.3 ppt Skin Care & Others 1,492 1,463-1.9% Skin Care & Others 7.7% 7.4% -.4 ppt Total 19,277 19,825 2.8% Total 1.% 1.% Gross profit Gross profit contribution Sanitary Napkins 4,769 5,34 5.6% Sanitary Napkins 5.7% 54.1% 3.4 ppt Disposable Diapers 1,92 938-14.2% Disposable Diapers 11.6% 1.1% -1.5 ppt Tissue Paper 3,436 3,89-1.1% Tissue Paper 36.5% 33.2% -3.3 ppt Skin Care & Others 16 238 123.9% Skin Care & Others 1.1% 2.6% 1.4 ppt Total 9,44 9,299-1.1% Total 1.% 1.% Segment profit Segment profit contribution Sanitary Napkins 2,851 3,196 12.1% Sanitary Napkins 6.1% 6.6%.5 ppt Disposable Diapers 435 327-24.8% Disposable Diapers 9.2% 6.2% -3 ppt Tissue Paper 987 545-44.7% Tissue Paper 2.8% 1.3% -1.5 ppt Skin Care & Others 33 17 228.6% Skin Care & Others.7% 2.% 1.3 ppt Other gains & Other gains & 438 197 15.4% Unallocated Unallocated 9.2% 2.8% 11.6 ppt Total 4,743 5,272 11.1% Total 1.% 1.% Gross margin Segment profit margin Sanitary Napkins 72.6% 72.2% -.4 ppt Sanitary Napkins 43.4% 45.8% 2.4 ppt Disposable Diapers 5.8% 46.9% -3.9 ppt Disposable Diapers 2.2% 16.4% -3.9 ppt Tissue Paper 37.9% 32.9% -5 ppt Tissue Paper 1.9% 5.8% -5.1 ppt Skin Care & Others 7.4% 16.3% 8.9 ppt Skin Care & Others 2.2% 7.3% 5.1 ppt Consolidated 48.8% 46.9% -1.9 ppt Consolidated 24.6% 26.6% 2 ppt Source: the Company, Guotai Junan International. Amoeba teams' overall performance in 217 was unsatisfactory but is expected to improve in 218. The overall performance of the Hengan s Amoeba small teams in 217 was unsatisfactory, as only about 2% of the teams met the targets, mainly because most of the teams were still at the stage of exploration. Due to the operational data accumulated in 217, Hengan and the mangers of Amoeba team have proper and precise basement to set targets for 218. In addition, the Company has optimized rules and management methods to guide managers of Amoeba teams. Given that, the management expects that 8% of the teams will meet their targets this year. Moreover, Hengan will fully launch Amoeba reform in the whole company, including marketing department and R&D department. In the first quarter of 218, the Company has seen obvious improvement in the operation of Amoeba teams. Sanitary Napkins Business Review and Outlook Penetrating into mature female market. Hengan has launched a new sub-brand of Space 7, in the package of simple and elegant like beauty makeup s, which targets the market of young working female class. Hengan have put more efforts on the market, where Hengan has less presence before. In next few years, the new Space 7 series will be one of the most important new products for Hengan to promote. The new Space 7 series will be mostly distributed in modern channel and ecommerce platforms since which are the main consumption places for young working women. Management expected that the new series have potentials to be operated as an independent brand for working women. Redefining sanitary napkins segment. As the penetration of the sanitary napkins market in China has been quite high, the Company is launching into personal hygiene market. As Space 7 has become a renowned brand among female customers, Hengan has a plan to fully exploit Space 7 to a comprehensive brand which provides diversified feminine products from female caring products to beauty makeup. As Space 7 has solid customer base in feminine products market, its brand extension in the See the last page for disclaimer Page 3 of 1
personal hygiene market would be relatively naturally and smoothly recognized by customers. The sales of sanitary napkins is expected to achieve low single-digit growth with high profitability. New products and online sales are still expected to be the main drivers for Hengan s sanitary napkins sales in 218. Though the sales volume growth of napkins ceased, Hengan can improve its sales by optimizing product portfolio. Due to moderate competition in sanitary napkin market, we expect that the Company can maintain its high profitability in napkins. Figure-1: Online Sales of Sanitary Napkins in Taobao and Tmall Figure-2: Online Sales of Sanitary Napkins in Taobao and Tmall 9 8 7 6 5 4 3 2 1 Total online sales Top-6' sales Total online sales YoY Growth Top-6' sales YoY Growth 25% 2% 15% 1% 5% % -5% Sofy (Unicharm) Space7 (Hengan) 16 14 12 1 8 6 4 2 Jan-15 Mar-15 May-15 Jul-15 Whisper (P&G) Kao abc (Kingdom) Kotex (Kimberly-Clark) Sep-15 Nov-15 Tissue Paper Business Review and Outlook High wood pulp prices are still the major concern. As at 2 March 217, the YTD global long fiber price and YTD global short fiber price increased 29.1% YoY and 48.8% YoY, respectively. As the production in Europe was affected by extreme weather during Jan 218 to Feb 218 and the release of APP s capacity was below expiation, the global pulp prices have continuously rose in March 218. Domestic wood pulp prices almost doubled in 217, but are also experiencing a kind of hangover after last year s excess as distributors hoarded overloaded inventory of wood pulp in 2H17. We expect that the rise in pulp prices has less room to grow as the high price has reached the limitations of tolerance level of downstream companies. But due to strong demand from tissue paper, the downward potential of wood prices is also limited. Figure-3: Global Pulp Prices 1,1 NBSK (USD/Metric Tonne) BHKP (USD/Metric Tonne) 1,5 95 9 85 8 75 7 65 6 Jan-15 Jun-15 Nov-15 Apr-16 Feb-17 Dec-17 Source: FOEX, Guotai Junan International. Figure-4: Domestic Pulp Price USD/ton China Pulp Net NBSK PIX Index China Pulp Net BHKP PIX Index 9 8 7 6 5 4 Jan-15 Jun-15 Nov-15 Apr-16 Feb-17 Dec-17 Source: FOEX, Guotai Junan International. The gross margin of Hengan s tissue paper is expected to fall further. Generally, Hengan has favorable purchasing price of wood pulp compared to market price due to its huge purchasing volume. Its purchasing price is renegotiated with suppliers every three month, referred to market price. Due to the rising market price, Hengan s average purchasing price of wood prices had rose from around USD5 per ton in the end of 216 to around USD7 per ton in the end of 217. Though the rising RMB to USD exchange rate partly counters the rise in wood pulp prices, Hengan s gross margin in tissue paper is expected to be See the last page for disclaimer Page 4 of 1
under huger pressure from high wood pulp prices in 218. Hengan s sales of tissue paper are expected to expand strongly in 218. As management stated in analyst meeting, they probably will not raise ex-factory prices of tissue paper in spite of high wood prices in 218, in order to grasp market share from small tissue paper manufactures. In addition, due to inflation expectation, customers incline to increase their current purchasing volume of tissue paper. Moreover, Hengan is catching up its online sales with Top1 and Top2 players. Given that, its sales volume is expected to record strong growth. Due the lower gross margin, Hengan has properly reduced the marketing expense and cut the dividend offered to distributors previously, and decreased the sales volume of low-gross-margin products, so as to maintain healthy profitability. Overall, we expect that its tissue paper sales will further expand, gross margin will continuously go down and segment margin will maintain at a healthy level. Figure-5: Online Sales of Tissue Paper in Taobao and Tmall 1,8 1,6 1,4 1,2 8 6 4 2 Total online sales Top-4's sales Total online sales YoY Growth Top-4's sales YoY growth Feb-18 Dec-17 Oct-17 Aug-17 Jun-17 Apr-17 Feb-17 Dec-16 Oct-16 Aug-16 Jun-16 Apr-16 Feb-16 6% 5% 4% 3% 2% 1% % -1% Figure-6: Online Sales of Tissue Paper in Taobao and Tmall 4 35 3 25 2 15 1 5 Vinda Breeze (Gold Hongye) Mind Act Upon Mind (Hengan) C&S Feb-18 Dec-17 Oct-17 Aug-17 Jun-17 Apr-17 Feb-17 Dec-16 Oct-16 Aug-16 Jun-16 Apr-16 Feb-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 Comparison between Hengan and Vinda in Tissue Paper Business Tissue paper business underperformed for Vinda in 217. Due to Vinda s strong sales growth in 217, its sales have surpassed Hengan slightly in the tissue paper by our calculation. But as Hengan has accomplished its Amoeba reform, the sales competition between Hengan and Vinda will be intense in 218. Affected by strongly rising raw materials prices, both Hengan and Vinda s gross margins declined significantly in 217, but the decline rate of Hengan was deeper. In 217, due to fewer decline in gross margin, Vinda had better profitability of tissue paper business than Hengan. Table-3: Results Comparison between Hengan and Vinda in Tissue Paper Business Hengan (144 HK) Vinda (3331 HK) Vinda (3331 HK) 216 217 216 217 216* 217* HK$ million Revenue 9,66 9,39 1,23 1,98 8,58 9,457 YoY growth 4.3% 3.6% 7.1% 11.9% 1.2% Gross profit 3,436 3,89 3,217 3,174 2,754 2,752 YoY growth 11.% -1.1% 18.2% -1.3% -.1% Gross margin 37.9% 32.9% 32.1% 29.1% 32.1% 29.1% Segment profit 987 545 1,67 928 913 85 YoY growth 7.9% -44.7% 4.1% -13.% -11.9% Segment profit margin 1.9% 5.8% 1.6% 8.5% 1.6% 8.5% Source: the Companies, Guotai Junan International. Note *: Roughly translated from HK$ to RMB in 216 and 217 by using exchange rates of.856 and.867, respectively. See the last page for disclaimer Page 5 of 1
1984 1985 1986 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218F 219F 22F Diapers Business Review and Outlook Sales growth may turn positive in 218. The group of age 27 to age 3 is the second largest baby boom in China s history, whose childbirth are expected to be released in the next 3 to 5years, which may benefit the diaper industry. Though the number of new child born in 217 was below expectation as young couples of reproductive age (age 27 to age 3) postponed their childbirth due to heavy work pressure, but their first childbirth will be release sooner or later. According to Kantar, China s customers have been turning back to domestic products as domestic manufacturers have been increasingly enhancing technologies and improving brand reputation. Hengan s QMO, produced by high technologies and high quality raw materials, has gained its reputation of high-quality from customers. Due to the investment in e-commerce and maternity stores, the presence of Hengan s diapers in these channels have strengthened. Given than, we expect that Hengan s diaper sales growth may turn positive in 218. Figure-7: Online Sales of Diapers in Taobao and Tmall Figure-8: Online Sales of Diapers in Taobao and Tmall 2, 1,8 1,6 1,4 1,2 8 6 4 2 Total online sales TOP-5's sales Total online sales YoY Growth TOP-5's sales YoY growth Feb-18 Dec-17 Oct-17 Aug-17 Jun-17 Apr-17 Feb-17 Dec-16 Oct-16 Aug-16 Jun-16 Apr-16 Feb-16 16% 14% 12% 1% 8% 6% 4% 2% % -2% -4% 35 3 25 2 15 1 5 Huggies (Kimberly-Clark) Pampers (P&G) Merries (Kao) Moony and Mamy Poko (Unicharm) Anerle (Hengan) Feb-18 Dec-17 Oct-17 Aug-17 Jun-17 Apr-17 Feb-17 Dec-16 Oct-16 Aug-16 Jun-16 Apr-16 Feb-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15 Jan-15 Figure-9: The Number of New Born Population 1 thousand 2,4 2,2 2, 1,8 1,6 1,4 1,2 Baby Boom Number of newborn baby per year YoY Growth Baby Boom 1% 8% 6% 4% 2% % -2% -4% -6% -8% Source: National Bureau of Statistics, Guotai Junan International Earnings Forecast Assumptions and Revisions Revised up our 218 and 219 top-line growth but revised down earnings forecasts. Due to better prospects for tissue sales, expansion in online market and more innovative new products launched, we have raised our revenue forecasts for Hengan in 218 and 219 by 1.2% and.7%, respectively. As Hengan s purchasing price of wood pulps have been raised significantly and is expected to remain high, we revised down forecasts for Hengan s gross margin in 218 and 219 by 4.6 ppt and 4.6ppt. As Amoeba small team model will fully implement in 218 and less marketing expense incur, we revised down the Company s SG&A ratio in 218 and 219, by.3 ppt and.3 ppt, respectively. Moreover, we have better forecasts on interest See the last page for disclaimer Page 6 of 1
income and exchange gain. Overall, we have slightly revised down Hengan s EPS in 218 and 219 by 3.4% and 3.5%, respectively. Table-4: Sanitary Napkins Business Assumptions Revisions NEW OLD CHANGE 218F 219F 22F 218F 219F 218F 219F Revenue 7,397 7,771 8,165 7,537 7,919-1.9% -1.9% Gross profit 5,354 5,624 5,959 5,444 5,718-1.7% -1.6% Segment profit 3,398 3,598 3,85 3,661 3,838-7.2% -6.3% Gross margin 72.4% 72.4% 73.% 72.2% 72.2%.1 ppt.2 ppt Segment profit margin 45.9% 46.3% 46.6% 48.6% 48.5% -2.6 ppt -2.2 ppt Source: Guotai Junan International. Table 5: Tissue Paper Business Assumptions Revisions NEW OLD CHANGE 218F 219F 22F 218F 219F 218F 219F Revenue 1,6 11,253 11,824 9,997 1,72 6.% 5.% Gross profit 3,9 3,377 3,647 3,499 3,891-11.7% -13.2% Segment profit 489 63 794 62 675-21.1% -6.8% Gross margin 29.2% 3.% 3.8% 35.% 36.3% -5.8 ppt -6.3 ppt Segment profit margin 4.6% 5.6% 6.7% 6.2% 6.3% -1.6 ppt -.7 ppt Source: Guotai Junan International. Table-6: Disposable Diapers Business Assumptions Revisions NEW OLD CHANGE 218F 219F 22F 218F 219F 218F 219F Revenue 2,19 2,152 2,294 2,186 2,33-7.6% -7.6% Gross profit 947 1,2 1,76 1,75 1,156-11.9% -13.3% Segment profit 323 336 378 289 382 12.% -11.9% Gross margin 46.9% 46.6% 46.9% 49.2% 49.6% -2.3 ppt -3 ppt Segment profit margin 16.% 15.6% 16.5% 13.2% 16.4% 2.8 ppt -.8 ppt Source: Guotai Junan International. Table-7: Earnings Estimates Revisions NEW OLD CHANGE 218F 219F 22F 218F 219F 218F 219F Revenue 21,494 22,669 23,789 21,243 22,56 1.2%.7% Gross profit 9,618 1,241 1,921 1,493 11,26-8.3% -8.6% Operating profit 5,479 5,893 6,359 5,824 6,276-5.9% -6.1% Net profit 4,1 4,433 4,794 4,242 4,591-3.4% -3.4% EPS 3.399 3.676 3.975 3.52 3.81-3.4% -3.5% Gross margin 44.7% 45.2% 45.9% 49.4% 49.8% -4.6 ppt -4.6 ppt Operating margin 25.5% 26.% 26.7% 27.4% 27.9% -1.9 ppt -1.9 ppt Net margin 19.1% 19.6% 2.2% 2.% 2.4% -.9 ppt -.8 ppt Source: Guotai Junan International. Lower TP to HK$88. but upgrade to Buy. Due to worse earnings forecasts, we lower our TP to HK$88.. But we are still bullish on Hengan as the foundations of Hengan are solid and the weak profitability is temporary. As most Amoeba teams have learnt from last year s operation and known the motivation system, the operation of Hengan and Amoeba teams is expected to go smoothly in 218. As Hengan has had 3 years of operation in online channel, the Company has learnt to rationalize its expense on online promotion. With its online sales expanding continuously, online channel is expected to contribute more profit. We believe that market overreacted to Hengan s decline in gross margin and overlook the long term earnings growth. And we insist that Hengan s current valuation is attractive. Therefore, we lower TP to HK$88. but upgrade the Company s rating to Buy. The new TP represents 21.1x 218 PER,19.4x 219 PER, and 17.9x 22 PER. See the last page for disclaimer Page 7 of 1
Table-8: Peers Comparison Company Ticker $ Operating Market Gross Share PER (x) PBR (x) ROE (%) Yield (%) Margin Cap Margin (%) Price (%) (HK$ mn) FY18F FY19F FY2F FY18F FY18F FY18F FY18F FY18F HK Listed Household Products Companies Vinda 3331 HK HKD 13.98 16,698 25.5 21. 17.2 1.9 7.7 1.2 29.6 7.1 Hengan 144 HK HKD 71.5 86,242 17. 15.8 14.6 3.9 24.1 3.8 44.7 25.5 Simple Average 21.4 18.4 16.3 3. 15.9 2.7 38.8 16.7 Weighted Average 18.7 16.7 17.2 3.7 21.4 3.7 45. 23.1 HK Listed Stable Companies Dali Foods Group 3799 HK HKD 6.38 87,368 18.1 15.7 14.2 4.5 26.5 3.8 39.3 21.4 China Resources Beer 291 HK HKD 34.85 113,6 41.8 33.8 27.4 4.5 1.9.8 35.4 9.3 China Mengniu Dairy 2319 HK HKD 23.75 93,275 22.4 18.3 n.a. 2.9 13.7 1.2 35.3 6.5 Tingyi 322 HK HKD 15.88 89,192 3.7 26.6 22.7 3.5 12.2 1.7 3.3 6.4 Want Want China 151 HK HKD 6.34 79,9 2.1 18.9 18.2 4.7 23.8 2.6 44.7 21. Tsingtao Brewery 168 HK HKD 4.6 59,482 27.2 24.3 26.7 2.4 9.3 1.5 41.2 6.3 Simple Average 26.7 23. 2.5 3.8 16. 1.9 37.7 11.8 Weighted Average 27.5 23.4 2.6 3.8 16. 1.9 37.3 11.8 China Listed Household Products Companies Sun Paper 278 CH CNY 1.68 34,397 11. 9.1 n.a. 2.4 2.9 1. 24.9 14.7 C&S Paper 2511 CH CNY 14.43 13,578 24.1 18.7 n.a. 3.1 14.6.7 36.7 1.5 Simple Average 17.5 13.9 n.a. 2.7 17.7.8 3.8 12.6 Weighted Average 14.7 11.8 n.a. 2.6 19.1.9 28.3 13.6 Global Listed Household Products Companies Johnson & Johnson JNJ US USD 125.1 2,633,741 15.5 14.7 13.8 4.6 29.3 3.1 68.7 32.5 Procter & Gamble PG US USD 75.91 1,51,846 18.1 16.7 15.6 3.5 21.2 3.9 5.6 22.4 Unilever Plc ULVR LN GBp 3,734.5 1,233,62 18.2 16.7 14.9 9. 6.2 3.9 44. 19.3 Kimberly-Clark Corp KMB US USD 14.74 287,75 15. 14.1 13.2 54.6 632.6 4. 36.1 18.9 Kao Corp 4452 JP JPY 7,291. 27,21 23.4 21.7 19.9 4.2 18.5 1.8 5.6 14.6 Unicharm Corp 8113 JP JPY 2,868. 133,31 27.9 25.4 22.6 4. 15.5.9 4.9 14.1 Simple Average 19.7 18.2 16.7 5. 28.9 2.9 48.5 2.3 Weighted Average 17.3 16.2 14.9 5.2 33.4 3.4 56.3 25.4 Source: Bloomberg. See the last page for disclaimer Page 8 of 1
Financial Statements and Ratios Income Statement [Table_BalanceSheet] Balance Sheet Year end 31 Dec (RMB m) 216A 217A 218F 219F 22F Total Revenue 19,277 19,825 21,494 22,669 23,789 Cost of sales (9,873) (1,526) (11,877) (12,429) (12,868) Gross Profit 9,44 9,299 9,618 1,241 1,921 Distribution costs (3,721) (3,891) (3,976) (4,171) (4,377) Administrative expenses (1,483) (1,292) (1,376) (1,451) (1,523) Other income and other gains net 543 1,156 1,213 1,274 1,338 Operating Profit 4,743 5,272 5,479 5,893 6,359 Finance income, net (184) (311) (19) (87) (81) Profit before Tax 4,559 4,961 5,37 5,86 6,278 Income Tax (1,79) (1,159) (1,262) (1,364) (1,475) Year end 31 Dec (RMB m) 216A 217A 218F 219F 219F Property, plant and equipment 8,439 8,923 9,166 9,33 9,431 Leasehold land and land use rights 751 773 783 76 738 Long-term bank deposits 1,76 2,5 2,625 2,756 2,894 Others 1,67 1,33 1,23 1,13 1,4 Total Non-current Assets 12,18 13,229 13,597 13,832 14,67 Cash & Cash Equivalents 5,563 8,332 13,536 13,616 15,66 Bank deposits 9,312 1,97 9,312 1,312 9,912 Inventories 3,195 3,436 4,244 3,793 4,528 Bills receivable 2,744 2,312 2,752 2,589 3,16 Others 1,314 1,491 1,65 1,763 1,936 Total Current Assets 22,127 25,669 31,45 32,73 34,459 Total Assets 34,145 38,898 45,46 45,95 48,526 Recurring Profit after Tax 3,48 3,81 4,18 4,442 4,83 Discontinued Profit 282 Profit after Tax 3,761 3,81 4,18 4,442 4,83 Non-controlling Interest (165) (7) (8) (8) (9) Shareholders' Profit / Loss 3,597 3,794 4,1 4,433 4,794 Recurring Shareholders' Profit 3,472 3,794 4,1 4,433 4,794 Basic EPS 2.967 3.149 3.399 3.676 3.975 Short-term debts 11,919 15,375 15,875 16,375 16,875 Bills payable 2,79 2,129 2,297 2,335 2,46 Accrued expenses and other payables 1,22 1,199 1,259 1,322 1,388 Others 81 483 2,487 2,22 2,23 Total Current Liabilities 15,28 19,186 21,918 22,54 22,747 Current assets less current liabilities 6,847 6,482 9,531 1,18 11,711 Total assets less current liabilities 18,865 19,712 23,128 23,851 25,778 Cash Flow Statement Year end 31 Dec (RMB m) 216A 217F 218F 219F 219F Operating activities PBT 4,559 4,961 5,37 5,86 6,278 DD&A 626 664 75 713 721 Change in working capital 66 79 (1,164) 558 (1,144) Others 47 322 167 121 114 Cash generated from operations 5,298 6,25 5,78 7,198 5,97 Income and interest tax paid (1,211) (1,167) (1,265) (1,359) (1,47) Cash from Operating Activities 4,87 4,858 3,813 5,839 4,5 Investing activities Capital expenditure (91) (567) (85) (85) (85) Interest income 37 94 15 127 133 Others (1,249) (718) 66 (1,131) 262 Cash from Investing Activities (1,78) (1,191) (85) (1,854) (454) Long-term debts 3,997 3,247 4,9 3,9 3,9 Others 16 12 126 132 139 Total Non-current Liabilities 4,14 3,368 5,26 4,32 4,39 Total Liabilities 19,384 22,554 26,944 26,87 26,786 Share capital 127 127 121 121 121 Reserves 14,6 15,979 17,736 19,444 21,356 Total Shareholders' Equity 14,727 16,16 17,856 19,564 21,477 Minority Interest 34 238 246 254 262 Total Equity 14,761 16,344 18,12 19,818 21,739 [Table_FinancialRatio] Financial Ratios 216A 217A 218F 219F 219F Revenue growth (%) 3.3 2.8 8.4 5.5 4.9 Gross profit growth (%) 5.2-1.1 3.4 6.5 6.6 Net profit growth (%) 1.3 5.5 8.1 8.1 8.1 Recurring net profit growth (%) 7.4 9.3 8.1 8.1 8.1 Financing activities Loans changes 5,262 3,179 4,153 (5) 5 Early redemption of convertible bonds (4,483) (17) 1 (466) Share placing 1 Dividend paid (2,197) (3,521) (2,472) (2,725) (2,882) Others (973) (393) (214) (214) (214) Cash from Financing Activities (2,391) (752) 1,477 (3,95) (2,596) Net Changes in Cash (84) 2,916 5,24 8 1,45 Foreign exchange effect and others (247) (146) Cash at Beg of Year 5,894 5,563 8,332 13,536 13,616 Cash at End of Year 5,563 8,332 13,536 13,616 15,66 Gross margin (%) 48.8 46.9 44.7 45.2 45.9 - Sanitary napkins 72.6 72.2 72.4 72.4 73. - Tissue paper 37.9 32.9 29.2 3. 3.8 - Disposable diapers 5.8 46.9 46.9 46.6 46.9 Operating profit margin (%) 24.6 26.6 25.5 26. 26.7 - Sanitary napkins 43.4 45.8 45.9 46.3 46.6 - Tissue paper 1.9 5.8 4.6 5.6 6.7 - Disposable diapers 2.2 16.4 16. 15.6 16.5 Net margin (%) 18.7 19.1 19.1 19.6 2.2 ROE (%) 24.4 24.6 24.1 23.7 23.4 ROA (%) 1.7 1.4 9.8 9.7 1.2 Cash conversion cycle 86.4 88.5 93. 93. 93. Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash Payout ratio (%) 94.7 66.7 65. 65. 65. Source: the Company, Guotai Junan International. See the last page for disclaimer Page 9 of 1
[Table_CompanyRatingDefinition] Company Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. [Table_IndustryRatingDefinition] Sector Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Outperform 跑赢大市 Relative Performance>5%; or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for GREENLAND BROAD (1253 HK),GUOTAI JUNAN I (1788 HK),BINHAI INVESTMENT (2886 HK),GFI MSCI A I (3156 HK),CAM SCSMALLCAP (3157 HK),ZHENRO PPT (6158 HK),LINK HOLDINGS (8237 HK),GFI MSCI A I-R (CNY) (83156 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. 218 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) 259-9118 Fax: (852) 259-7793 Website: www.gtja.com.hk See the last page for disclaimer Page 1 of 1