Hengan: Rising Input Costs Exacerbate Challenges Amid Business Transition; Lowering FVE to HKD 49

No-moat Hengan reported 2021 results that missed our estimates across both the top line and margins. Continued disruptions in global logistics and rising commodities prices have dragged both sales and profits for the company. Progress in channel transition has been weaker than our expectations and was unable to reignite growth for the company. We lowered our 2022 estimates on revenue and profit margins due to continued headwinds in market competition and expectations for further cost pressure. We revise down our fair value estimates to HKD 49 per share from HKD 60 per share as a result, which implies 15 times 2022 P/E, 9 times EV/EBITDA, and 6% FCF yield. We think the near-term share price lacks catalysts and would be weighed on by low visibility in earnings.