Tissue Segment Fuels Hengan’s 2022 Sales Growth

No-moat Hengan 01044 reported fiscal 2022 results in which the top line and net profit missed Refinitiv consensus estimates. We keep our fair value estimate unchanged at HKD 40 per share, which implies 13 times 2023 price/earnings, consistent with the five-year average. We do not expect a near-term catalyst to the stock due to the absence of turnaround signals in its medium-term growth outlook. The major overhang for the company remains the lack of a growth driver for its profit engine, the sanitary napkin business.

Revenue increased 9% year on year in 2022, moderately behind Refinitiv consensus and our estimates, due to sanitary napkin and diaper segments. Sales for these two categories grew 1% and fell 1%, respectively, for the full year. Management noted product mix was the major driver of growth in the sanitary napkin segment, in which volume declined moderately. The lack of competitive offerings in Hengan’s portfolio is likely the main reason behind the slow mix upgrade and lackluster share trend.