Margin pressure expected to continue in 4Q22F
- Vinda reported 3Q22 revenue of HK$4.4bn, up 6.5% yoy (+12.9% ccy. growth); Operating profit was down 78.2% yoy to HK$77.0mn, below our expectations owing mainly to a significant gross profit drop due to higher wood pulp prices.
- We expect GPM pressure to continue in 4Q22F due mainly to high pulp prices. We believe price hikes will not fully mitigate the impact of high raw material costs.
- Vinda maintains its top-line target for 2022F, supported by decent organic growth of both tissue and personal care products.
- Maintain Hold with a new DCF-based TP of HK$17.7, as we believe Vinda will continue to suffer from high cost pressure.
- In the long run, we expect Vinda’s core competence to improve the product mix to help it further gain market share and improve its margins.
Vinda’s 3Q22 results below our expectations
Vinda reported 3Q22 revenue of HK$4.4bn, up 6.5% yoy, driven by both volume and ASP growth in the tissue and personal care segments. By month, Vinda achieved better progress in Aug and Sep, with nearly double-digit yoy growth, better than that in Jul. The ASP improvement in 3Q22 was driven mainly by two price hikes and mix upgrades in both mainland and overseas markets. Channel performance was fairly even. The B2B channel resumed well, driven mainly by a recovery in overseas business in Malaysia and Singapore. E-commerce continued to deliver the fastest growth in mainland China, in line with management expectations. Key accounts continued to face pressure due mainly to strict lockdown measures across the mainland, which impacted offline traffic. Traditional channels returned to nearly double-digit growth in 9M22, which will result in a better channel mix, as it is traditionally quite a profitable channel, per management.
Margin pressure expected to continue in 4Q22F
Vinda’s GP dropped by 17.1% yoy to HK$1.2bn; its GPM narrowed by 7.8ppts to 27.2% in 3Q22, due mainly to higher pulp prices. We expect Vinda to continue to face GP pressure in 4Q22F. Sales contribution from premium tissue products remained stable yoy at 36–37% in 3Q22. Sales of its high-end tissue brand, Tempo, grew by 10% yoy in 3Q22. Operating profit dropped by 78.2% to HK$77.0mn, and its OPM narrowed by 6.8ppts to 1.8%. Vinda improved its distribution exps. control in 3Q22, and expected to continue in 4Q22F. Excluding FX losses from operating activities, the OPM was 2.9%. Total FX losses were HK$54.1mn in 3Q22, and we expect the trend to continue in 4Q22F given the current weak Rmb. NPM was down 5.4ppts to 1.1%. We expect margin pressure to continue in 4Q22F, given the high pulp prices trending into 4Q22F and the continuing weak Rmb.
Vinda maintains its top-line target for 2022F
Management maintains its top-line target for 2022F and does not rule out the possibility of a further price hike in 4Q22F. We believe the top line will pick up, as company delayed some marketing activities into 4Q22F and the largest e-com festival, Nov 11, will likely drive online sales growth. Capex will be HK$1.2bn–1.3bn in FY22F with 20% maintenance capex, lower than that in the previous two years, per management.
Maintain Hold with a new DCF-based TP of HK$17.7
We cut our FY22–24F NP forecasts by 22.2%/21.1%/14.7%, respectively, to reflect margin pressure. We maintain our Hold rating with a new DCF-based TP of HK$17.7 (risk-free rate: 4.0%, beta: 0.84, WACC: 7.6%). An upside risk would be pulp prices trending down result in better GPM. Key downside risks include 1) higher-than-expected pulp prices, which would put more pressure on GPM, 2) weaker-than-expected consumption demand, impacting top-line growth, and 3) intensive competition leading to the failure of price hikes.
