Intensified Tissue Paper Promotions Depress Hengan Top-Line Growth; Input Inflation Likely Headwind

We increase our fair value estimate for Hengan International Group to HKD 73 from HKD 69, reflecting Chinese yuan appreciation against the Hong Kong dollar. We believe the online channel restructuring and its strategy focusing on B-to-C segment should be able to help Hengan to boost its revenue growth in the medium term. However, we expect the operating margin will be under pressure from the rising raw material costs and higher A&P costs for new premium product launches in the near term. This appears to be priced in, however, and we view the shares as being undervalued.