[ET Net News Agency, 18 December 2019] Morgan Stanley cited Hengan International
(01044) management reaffirming that the disruption from the traditional channel and
counterfeit products had been largely solved.
It is still committed to rolling out new products, especially for femcare and tissues.
Sell-in of sanitary napkins recovered nicely in October and November, as channel pricing
has largely stabilized. Competition for tissue paper among the four leading players
remains benign, as they're focused on margin recovery. As pulp prices continue trending
down, management believes tissue GPM will continue to improve, said the research house.
Management believes that diaper sales could return to growth in 2020, after
reorganization and strong growth in new products. Strong sales momentum of adult
incontinence products and detergent continued in 2H 2019, supported by strong online sales
growth.
While management doesn't provide numerical guidance, it appears positive on 2020 trends
and thinks the recent recovery is sustainable. Coupled with the COGS (cost of goods sold)
tailwind continuing into 1H20, Morgan thinks Hengan's coming results for 2H 2019 and the
positive outlook for 1H 2020 will drive stock upside.
Morgan maintained its "overweight" call on Hengan, with a target price of HK$65. (KL)