Analysts expect 37% earnings growth with these updates.
Maybank Kim Eng recently talked with Hengan's management. Here are the key takeaways from the recent meet-up:
i) Sanitary napkin sales growth accelerated HoH with margins rising on product mix upgrade; ii) tissue sales growth picked up HoH on new capacity addition and though its gross profit margin shrank slightly HoH as sales mix normalised; iii) diaper sales fell short of management’s expectations; and iv) snack food sales remained weak.
We expect Hengan’s net profit to grow by 37% YoY to HKD3,617m on the back of 15% topline growth. Gross margin is estimated to increase by 4.8ppt YoY to 44.1% in FY12F.
OPEX-wise, the key cost ratios are likely to decline moderately YOY in view of management’s strict cost control discipline and enhanced economies of scale. Of note, we expect its distribution and administrative cost as a percentage of sales to lower by 50bps YoY to 22.7% in FY12F.
The chat with management confirmed our view that diaper sales growth would continue to disappoint in 2H12F, as sales in the mid to-high-end segment failed to make up for the decline in the low-end segment, which formed one-third of total sales.
Management has therefore decided to step up its A&P efforts for high-end diaper products and refine its rebate policy in 2013, moving away from its past practice of basing rebates on overall sales performance rather than that of individual segments.
As for the small snack food division, greater emphasis will be placed on product portfolio enhancement as jelly still makes up of 70% of the company’s total sales.
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