25 September 2018

Hengan shows surprising resilience after sell-down

When an insider offloads shares, the market tends to react negatively.

So, it came as a surprise when Hengan International (01044.HK) held up rather well after executive director and main shareholder Xu Chunman {許春滿} sold down his stake in the company last month.

Xu is left with 1.25 percent of the stock after selling 247,000 shares for HK$23 million (US$2.96 million). It was the second disposal for Xu since May.

The news put pressure on the stock at the open Tuesday; it was down nearly 1 percent at the close. Yet, the pullback was marginal compared with a 31 percent cumulative gain since the start of the year.

Interestingly, there was not much in the way of encouraging news to go around.

Hengan’s top management, while seemingly unmoved by Xu’s divestment, is cautiously optimistic about the company’s prospects. It expects manufacturing costs to go up in the second half but remains confident about the company’s sanitary napkin and disposable diaper business, brokerage Shenyin Wanguo Securities (00218.HK) said in a research report after a teleconference with the company.

Tissue paper is Hengan’s biggest draw, accounting for 48.6 percent of revenue in first half. The price of wood pulp — a key raw material — has been rising this year, compounding pressure on margins.

As a result, Hengan is putting more emphasis on its sanitary napkin business which tends to be less sensitive to price fluctuations and enjoys higher customer loyalty. And as it happens, it’s also profitable.

Sanitary napkins made up 27.5 percent of revenue in the first six months, up 2.5 percentage points from 2012, and are expected to be a key profit driver going forward.

Their gross profit margin was 65.1 percent during the period on sales growth of 26.3 percent year on year.

– Contact the writer at [email protected]



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