Hengan Earnings: Favorable Input Costs Drove Margin Improvement

No-moat Hengan International reported 2023 results that trailed our estimates on revenue but beat on gross and net profit. A favorable cost environment drove better-than-expected margins for major categories, while the notable increase in net profit was due to a significant reduction in foreign exchange loss compared with last year. The company has demonstrated decent progress in penetration into e-commerce and new retail channels, which lifted revenue growth, and we think these are good venues to drive product mix shift in the long term.