Vinda is a leading hygiene company in Asia, with core business segments including tissue, incontinence care, feminine care, baby care and professional hygiene solution under key brands Vinda, Tempo, Tork, TENA, Dr. P, Libresse, Libero and Drypers.

Revenue growth in 2Q slows down, 1H profit margins still under pressure

In 1HFY2023, total revenue of Vinda amounted to HK$10,070 million, representing an increase of 10.1% organically and of 4.0% (presented in Hong Kong Dollar). 1Q and 2Q revenues were HK$4,969 million and HK$5,101 million, a year-on-year increase of 15.5% and 5.5% respectively. 1H Net profit declined by 81.1% to HK$121 million. The net profit margin narrowed by 5.4 ppts to 1.2%. Basic EPS was 10.0 HK cents (1HFY2022: 53.0 HK cents), and an interim dividend of 10.0 HK cents (1HFY2022: 10.0 HK cents) per share.

Despite the gradual reduction of the pulp prices since the end of 2022, costs in the first half of the year were still impacted by the inventories with relatively high price, and on gross margin, which decreased by 6.9 ppts year-on-year to 25.1%. Gross profit was down by 18.5% to HK$2,527 million. EBITDA fell by 42.3% to HK$818 million while EBITDA margin was narrowed by 6.5 ppts to 8.1%. Total foreign exchange loss was HK$0.3 million (H1 2022: HK$22.4 million loss), of which HK$5.4 million loss came from operating activities (H1 2022: HK$26.2 million loss), and HK$5.1 million gain was due to financing activities (H1 2022: HK$3.8 million gain).

In terms of business segments, revenue from tissue segment amounted to HK$8,361 million in 1HFY2023, which delivered a year-on-year increase of 5.0% or an organic sales growth of 11.5%, representing 83% of Vinda's total revenue (1HFY2022: 82%). The gross margin of tissue segment was 23.8% during this Period (H1 2022: 31.6%). Vinda adhered to focus on premium categories, resulting in a double-digit growth of the premium tissue portfolio in mainland China as well as an increasing proportion of revenue. The impact from the high-cost wood pulp inventory and promotion had been relieved to an extent by the premium categories for its relatively higher profit margin.

Revenue from the personal care business decreased by 0.5% to HK$1,708 million in 1HFY2023, which was a 3.7% increase at constant exchange rates and represented 17% of the Vinda's total revenue (1HFY2022: 18%), revenue by category was HK$556 million for baby care, HK$400 million for feminine care and HK$752 million for incontinent care. Gross margin of the personal care segment was 31.2% (1HFY2022: 34.1%), of which baby care was 24.0%, feminine care was 46.7% and incontinent care was 28.2%.

In terms of capacity planning, the annual designed production capacity of the Vinda's papermaking facilities was 1,390,000 tons as at 30 June 2023. The Southeast Asia regional headquarters in Malaysia was officially put into operation on 16 December 2022. It is Vinda's first overseas innovation and R&D centre, which would help Vinda to accurately meet consumer demand in the Southeast Asian market and strengthen its regional supply chain footprint, improving Vinda's production and sales efficiency in Southeast Asia.

In terms of sales channel, traditional distributors, key accounts managed supermarkets and hypermarkets, B2B corporate customers and e-commerce platforms accounted for 24%, 21%, 9% and 46%, respectively, of the total revenue. The e-commerce revenue recorded the most significant growth with an organic increase1 of 23.6% year-on-year.

Despite the gradual reduction of the pulp prices in the first half of the year, due to inventory cycle factors, the expected cost reduction trend will not be reflected until the second half of the year.

Company valuation

economic recovery and consumer sentiment remain uncertain, we adjusted the gross profit margin forecasts for 2023 to 2024 from 30.2% / 31.1% to 26.6% / 27.6% respectively, and further lowered the company's EPS forecast for FY2023E-FY2024E to 36.6 cents and 52.8 cents respectively (lowered by 50.3% and 43.9% compared to the report in March 2023), with TP HKD$9.78, implies a FY2024E P/E of 18.6x, in line with its 5-years average +1SD. Our investment rating is “Sell”.

Risk factors

1) wood pulp prices rise more than expected; 2) Large fluctuations in RMB; 3) Economic recovery momentum slower than expected, consumer confidence weakens further; and 4) Industry competition is intense than expected.

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