[ET Net News Agency, 26 August 2019] HSBC Global Research cut its target price for
Hengan International (01044) to HK$64.7 from HK$70.3 and maintained its "buy" rating.
The research house said Hengan's revenue growth of 6.3% in 1H was largely in line with
HSBC's estimate. However, the business mix was a negative surprise as revenue from
sanitary napkins dropped by 4.6% while its revenue from the low-margin other segment was
up 46.2%. The reported net profit missed by 7%.
HSBC thinks the drop in sanitary napkin revenue was temporary due to the company's
channel reforms, and it expects sales to recover in 2H. Hengan started to take
distribution back from distributors to its own small sales teams in 1H, leading to a
double-digit drop in its sanitary napkin sales under its traditional distribution channel.
HSBC believes sales of sanitary napkins in 2H should converge to the industry growth
rate. It expects the reported operating profit to be up by 16.1% on 5.6% growth in revenue
in 2H. Its net profit forecast for 2019 is now 0.4% lower than before. (KL)