Price hike and lower pulp price to ease margin pressure
? Vinda reported FY21 revenue of HK$18.7bn, up 13.1% yoy, and net profit of HK$1.64bn, down 12.6% yoy, below our expectations because of lower margins.
? In Dec 2021, Vinda imposed another round of price hikes in its tissue product line, which will help improve margins in FY22F.
? The wood pulp price decreased in the past couple of months, and management expects the trend to continue in 1Q22F.
? Reiterate ADD with an unchanged DCF-based TP of HK$24.40.
Results missed because of higher margin pressure
With the constant FX rate, tissue sales were HK$15.5bn in FY21, up 7.2% yoy, and sales of personal care products were HK$3.2bn, up 6.2% yoy. E-commerce sales grew by 48.9% yoy in FY21, and the online sales contribution improved to 41% in FY21, from 39% in 9M21. Online sales contributed 50% of China sales. Because of higher costs of wood pulp, energy and packaging materials, especially in 2H21, Vinda’s FY21 gross margin dropped by 2.4% pts yoy to 35.3%. Its gross margin for tissue products dropped by 2.9% pts yoy to 35.4%, and its gross margin for personal care products improved by 0.4% pt yoy to 35.1%. Vinda’s full-year advertising and promotion expenses ratio was 8.2%, 0.9% pt higher than that in FY20, as it resumed its marketing campaign in brand building for premium feminine care products and penetrating new online channels after a pause in marketing in FY20 amid the pandemic. With the absence of government pandemic subsidies, its FY21 operating margin declined by 4.0% pts yoy to 10.9%.
Additional price hikes in Dec 2021
In FY21, Vinda increased its capacity significantly from 1.25m tons to 1.39m tons, which included the capacity expansion planned but delayed since FY20. The additional capacity and promotions in new online channels, such as live broadcasting platforms and social ecommerce channels, put pressure on Vinda’s ASP. With the sales scale increasing in the new online channels, Vinda started to raise prices in Aug 2021. The first round of price hikes was a success with 2% sales volume growth, ahead of the market average. In Dec 2021, Vinda imposed another round of price hikes for its whole tissue product line. The Dec price hike resulted in a decrease in sales volume, but management is confident that the volume drop will be temporary. 4Q21 overall tissue price growth was flat, and volume growth was about 2% yoy. In FY22F, Vinda will closely monitor the market and impose further price hikes if there are any opportunities. Vinda is also progressing well in its premiumization strategy, with over 30% yoy growth in its premium product sales, and premium products contributed about 35% of its mainland China sales.
Downtrend in raw material prices may ease FY22F margin pressure
The wood pulp price decreased in the past couple of months, and management expects it to continue to gradually go down in 1Q22F. Energy and packaging material prices were also high in 4Q21, but Vinda noted that the pressure has eased recently.
Reiterate ADD with an unchanged DCF-based TP of HK$24.40
We cut our FY22–23F net profit forecasts by 3.4% and 2.9%, respectively, to reflect lower than-expected margins, and rolled over our forecast to FY24F. We expect Vinda’s margin pressure to ease in 1H22F, given recent price hikes and a downward-trending pulp price. We expect Vinda to benefit from improving demand for premium tissue products and its strong online sales expansion. Vinda will also benefit from the sales recovery in overseas markets, like Malaysia and Korea, in FY22F. A key catalyst is a margin increase. A key risk is a higher-than-expected wood pulp price.