Hengan Earnings: Fierce Industry Competition Dragged Down Net Profit; Reducing Valuation by 6%

No-moat Hengan International’s 2024 revenue was in line with our forecast, but net income missed our estimate by 9% due to higher sales and marketing expenses amid stiff market competition. We lowered our 2025-26 net income projections by 8%-13% while leaving longer-term forecasts largely unchanged. We bake in more pressure on Hengan’s selling prices in the tissue products over the next two years, although the company could still achieve volume growth. Consequently, we cut our fair value estimate by 6% to HKD 30 per share, which implies 14 times 2025 price/earnings and 7 times enterprise value/EBITDA. We see shares as undervalued currently, supported by an attractive 2025 dividend yield of 6.8%.