20150703-大和证券-Upgraded_as_value_emerges_11页_486kb

Vinda International 3331 HK Summary

Core Content

Vinda International (3331 HK) is a leading tissue paper brand in China, with a market share of 14% in 2014, and is undergoing a strategic transformation into a personal hygiene product company. The firm has upgraded its rating from Hold to Outperform, maintaining a target price of HKD17.70, with an upside of 7.5% from the 3 July price of HKD16.46. The upgrade is based on the company's solid execution in expanding its personal hygiene business and continued growth in the tissue paper sector, especially through e-commerce.

Main Points

• Market Position and Strategy: Vinda is the third-largest tissue paper brand in China and is aiming to become the top player in the premium personal hygiene segment by 2020. The company is focusing on incontinence products, followed by feminine care and baby diapers.
• Market Expansion: Vinda is leveraging the growing aging population in China, which is projected to reach 400 million by 2025, to drive sales in personal hygiene products. It also aims to expand into the Eastern and Western markets in 2015.
• SCA Partnership: SCA, now the major shareholder with a 51.4% stake, is supporting Vinda's growth through R&D and global resources. This partnership is expected to enhance Vinda's product portfolio and brand positioning.
• E-commerce Focus: Vinda has established a dedicated e-commerce team and is ranked as the top player in major e-commerce platforms like Tmall and JD.com. E-commerce is expected to grow to 10% of revenue in 2015.
• Financial Outlook: Vinda's revenue is forecasted to grow from HKD9,504m in 2015 to HKD11,628m in 2017. Operating profit is expected to rise from HKD1,024m in 2015 to HKD1,348m in 2017. Net profit is also projected to increase, with core EPS growing from HKD0.736 to HKD1.007.
• Valuation: The target price is based on a 24x PER for 2015E, consistent with Hengan's target PER. Vinda has historically traded at a discount to Hengan's PER, but this has narrowed to 15% on average since 2013 due to SCA's support.

Key Financial Metrics

Risks

• Pulp Cost Fluctuations: Vinda's earnings are sensitive to wood pulp prices, which have been stable in 2015, but could rise, affecting gross margins.
• High Gearing: Vinda's net gearing is expected to remain above 70% through 2016, increasing financial risk due to the acquisition of SCA's China operation.
• Overcapacity: The Chinese tissue paper industry is expected to see a 57% increase in production capacity by 2015, which could lead to pricing pressures.
• Competition in Personal Hygiene: The company faces stiff competition in the feminine hygiene and baby diaper markets, where Japanese brands dominate.

Business Segments

Share Price Performance

• 12-month range: 10.48-18.72
• Market Cap (USDbn): 2.12
• 3m avg daily turnover (USDm): 3.28
• Shares Outstanding (m): 998
• Major Shareholder: SCA (51.4%)

Financial Position

• Net Debt to Equity: 74.4% in 2015E
• Free Cash Flow: Expected to remain negative in 2015E but improve over time
• Dividend Payout: Around 25% of reported net profit
• Credit Facility: HKD9.7bn as of December 2014, sufficient to support capex and dividend plans without equity financing

Conclusion

Vinda International is well-positioned to benefit from the growth of the Chinese personal hygiene market and its e-commerce expansion. The upgrade to Outperform reflects confidence in its strategic direction and execution, despite the risks of rising pulp prices and high gearing. The company's focus on quality and brand positioning, along with SCA's support, is expected to drive long-term growth.