Here's what to blame.
According to Maybank Kim Eng, YoY 1Q13 sales growth fell behind management's FY13 guidance of 25% YoY growth, mostly attributable to ASP pressure amid large promotional discounts in 2M13.
Management indicated that while promotional efforts eased in March, ASPs are still below last year's HKD14,000/tonne.
However, volume growth was still satisfactory at above 20% YoY. Some regions are seeing more intense competition; management does not agree that the industry is in oversupply at the moment though.
Overall, management views the current consensus projections of approx. 27% YoY growth in sales and profit as too aggressive. Our forecasts are in the middle of Street estimates.
We expect near-term share price weakness given the miss in 1Q13 sales growth. We prefer Hengan to Vinda at the moment due to its strong sanitary napkins business and higher exposure to the non-toilet rolls segment, which is less vulnerable to rising competition.
Vinda is trading at 15.1/11.7X our FY13/14F PER. We currently have a BUY recommendation on both Vinda and Hengan with a TP of HKD12.6/91.4, respectively. We will revisit our estimates on both companies following an update with management of Hengan for further colour on developments in the industry.
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