CICC: Lower the target price of HENGAN INT'L (01044) to HKD 25.5, maintaining a "neutral" rating.

Zhongjin released a research report stating that considering the intense market competition and the need for new product launches, HENGAN INT'L (01044) 2025 net profit was lowered by 26% to 2.29 billion yuan, with a new introduction of a profit of 2.412 billion yuan in 2026. The neutral rating is maintained, taking into account the adjustment of profit forecasts and the increase in valuation of H-share consumer sectors, the target price of the bank was lowered by 15% to 25.5 Hong Kong dollars, with the current stock price corresponding to 11.0/10.3 times the P/E of 25/26 years, and the target price equivalent to 9.7% higher than the current stock price. Target price corresponds to about 12/11.3 times P/E of 25/26 years. The main points of Zhongjin are as follows: The bank expects a single-digit year-on-year decrease in comparable net profit in 1H25, in line with market expectations. The bank expects the company's revenue in 1H25 to slightly decrease year-on-year, with comparable net profit (excluding exchange gains and losses) decreasing year-on-year in single digits, in line with market expectations. The bank expects a slight year-on-year decline in revenue in 1H25, with revenue from tissue business stabilizing year-on-year in 1H25, while revenue from sanitary napkins is under pressure. Specifically, (1) tissue: the bank expects tissue revenue to grow in the single digits, mainly due to sales volume contribution, good performance of high-end products and channel expansion, as well as good performance of wet tissues. In the second quarter, industry competition remains fierce, and the bank expects the company to need significant promotional efforts in the tissue business. (2) sanitary napkins: the sanitary napkins industry as a whole has been significantly impacted by the "315", and the bank estimates that the company's sanitary napkin revenue in 1H25 may decline by low double digits. In terms of industry competition, domestic brands have increased their promotional efforts, and the bank estimates that the company's promotional efforts in 1H25 are fairly manageable. (3) diapers: the bank estimates that the diaper business in 1H25 may decline year-on-year in single digits, with adult diapers growing due to demographic dividends, and the mid-end brand in baby diapers, Angelcare, experiencing a decline in revenue due to increased promotional efforts. The bank expects pulp prices to remain low in 1H25, with cost pressures controlled, as competition remains intense and expense ratios slightly increase. Currently, pulp supply is sufficient, pulp prices are low, and there are no conditions for price hikes. The bank estimates that cost pressures will be low for the company in 1H25. By category, the bank estimates that tissue business gross profit margin may improve year-on-year in 1H25, sanitary napkin business gross profit margin remains at a high level (mainly due to cost-side benefits, production scale effects, and the company's controllable promotional efforts in 1H25), and diaper business gross profit margin remains stable. In terms of expense ratios, as the market competition environment remains intense, the bank estimates that the overall expense allocation for the company will increase, leading to a slight increase in expense ratios. Overall, the bank expects the company's comparable net profit (excluding exchange gains and losses) to decline year-on-year in single digits in 1H25. The company's revenue in the second half of the year is expected to improve, as market competition and changes in the sanitary napkins industry need to be observed. The bank expects revenue from tissues, wet tissues, and diapers in the second half of the year to further improve, while the sanitary napkins business, which is heavily impacted by the industry, will still need to be observed in the second half of the year. The company will continue to promote product high-endization and channel diversification to drive continuous revenue growth. Risk warning: intensified industry competition, weak overall demand in the sanitary napkins industry, and significant increase in market promotions.