Core Viewpoint - The financial performance of Hengan International has declined, with both revenue and net profit decreasing in 2024, primarily due to rising raw material costs and negative public sentiment surrounding sanitary napkins [2][3]. Financial Performance - In 2024, Hengan International reported a revenue of 22.669 billion yuan, a year-on-year decrease of 4.62% [2]. - The net profit for the same period was approximately 2.299 billion yuan, down 17.93% year-on-year [2]. - The tissue paper business, which accounts for over 50% of revenue, generated 13.422 billion yuan, a decline of about 2.37% [2]. - The sanitary napkin segment saw the largest drop, with revenue of 5.678 billion yuan, down 8.09% year-on-year [2]. - The only growth came from the diaper segment, which achieved revenue of 1.261 billion yuan, an increase of 0.52% [2]. Cost Issues - Hengan International attributed its performance decline to rising raw material prices, particularly the cost of wood pulp, which increased in the second quarter, affecting third-quarter inventory costs [3]. - Overall gross profit fell by approximately 8.6% to about 7.325 billion yuan, with the gross margin decreasing to around 32.3% [3]. - The company faced significant pressure from rising raw material costs, which have been a recurring issue impacting profitability [3]. Industry Sentiment - Recent controversies regarding the safety and quality of sanitary napkins have negatively affected Hengan International's performance, with the sanitary napkin segment being the most impacted [4]. - Multiple brands, including Hengan's competitors, have faced scrutiny over product quality, leading to consumer doubts about safety standards [4]. - Analysts suggest that the entire sanitary napkin industry is under pressure due to these safety concerns, which could further impact brand development and consumer trust [4][5].

Core Viewpoint - The paper towel giant Hengan International is facing significant challenges due to rising costs and intense price competition in the industry, leading to a decline in both revenue and net profit for 2024 [1][2][4]. Financial Performance - Hengan International reported a revenue of 22.67 billion RMB for 2024, a decrease of 4.6% compared to the previous year [2][4]. - The net profit attributable to shareholders was 2.30 billion RMB, down 17.9% year-on-year [2][4]. - The gross profit margin fell to 32.3%, down 1.4 percentage points from the previous year [4]. Business Segment Analysis - The paper towel segment, despite generating over 14.1 billion RMB in revenue, reported a rare loss of 245 million RMB [5][9]. - The sanitary napkin segment, with a gross margin exceeding 60%, has become a key profit driver for the company [1][9]. Market Conditions - The domestic market for daily necessities is becoming increasingly competitive, with many brands engaging in aggressive price promotions, leading to a decline in average selling prices [4][7]. - The cost of raw materials, particularly wood pulp, has increased, impacting profit margins [4][7]. Strategic Response - Hengan International is focusing on diversifying its product offerings and enhancing high-margin products to offset the weak performance in the paper towel segment [1][9]. - The company is emphasizing the development of its sanitary napkin business, which has shown strong profitability despite a slight revenue decline [9][10]. - Hengan International plans to upgrade its product lines and increase the penetration of high-end products to mitigate the effects of price competition in the paper towel market [10].

Core Viewpoint - The company, Hengan International, reported a significant decline in net profit by approximately 18% for the year ending December 31, 2024, primarily due to a decrease in overall gross profit and a competitive market environment [1][3]. Financial Performance - Revenue for 2024 was RMB 22.67 billion, a decrease of 4.62% compared to RMB 23.77 billion in 2023 [2][3]. - Operating profit fell by 15.7% to RMB 3.35 billion, attributed to the decline in overall gross profit [2][3]. - Net profit was approximately RMB 2.30 billion, down 17.93% from RMB 2.80 billion in the previous year [2][3]. - The proposed final dividend is RMB 0.70 per share, unchanged from the previous year [2]. Gross Margin and Profitability - Overall gross profit decreased by about 8.6% to approximately RMB 7.33 billion, with the gross margin dropping to 32.3% from 33.7% in 2023 [3][4]. - The company anticipates a cautious approach to promotional spending in 2025, with expectations for high-end products to continue showing significant growth [3]. Business Segment Performance Sanitary Napkin Business - Revenue from the sanitary napkin segment was RMB 5.68 billion, down 8.09% year-on-year [4][6]. - The market for sanitary products is highly competitive, with price promotions affecting sales [6]. - Despite the decline, the gross margin for sanitary napkins remained stable at approximately 63.7% [6]. Diaper Business - The diaper segment saw a slight increase in revenue to RMB 12.6 billion, up 0.5% from the previous year [11][12]. - The high-end product "Q MO" experienced significant growth, with sales reaching approximately RMB 5.48 billion, a year-on-year increase of 20.1% [11][12]. - The gross margin for the diaper business improved significantly to approximately 45.4% [12]. Tissue Paper Business - Revenue from the tissue paper segment was approximately RMB 134.22 billion, a decrease of about 2.4% [9]. - The gross margin for tissue paper products fell to approximately 18.9% from 21.7% in 2023, impacted by increased promotional expenses and raw material price fluctuations [9]. Wet Wipes Business - The wet wipes segment achieved a significant revenue increase of 30.7%, surpassing RMB 1.2 billion [10]. - The gross margin for wet wipes was the highest among tissue products at 50.7% [10]. Market Trends and Strategies - The domestic consumer market remains stable, but there is a need for improved consumer spending capacity and willingness [3]. - The company is focusing on high-quality personal care products and adapting to fragmented sales channels, with e-commerce and new retail sales accounting for 34.1% of total sales [3]. - The company plans to continue promoting high-end products and enhancing its market position in the face of intense competition [6][11].

Financial Performance - Total revenue for the year ended December 31, 2024, was RMB 22,669,215, a decrease of 4.6% compared to RMB 23,767,936 in 2023[3] - Operating profit decreased by 15.7% to RMB 3,354,591 from RMB 3,977,931 in the previous year[3] - Profit attributable to equity holders of the company was RMB 2,298,535, down 17.9% from RMB 2,800,533 in 2023[3] - Basic and diluted earnings per share decreased by 16.6% to RMB 2.015 from RMB 2.415 in the previous year[3] - The gross profit margin decreased to 32.3% from 33.7% in 2023[3] - The group reported total revenue of RMB 22,669,215 thousand for the year 2024, with a breakdown of RMB 5,677,965 thousand from sanitary napkin products, RMB 1,260,631 thousand from diaper products, RMB 13,422,445 thousand from tissue products, and RMB 2,308,174 thousand from other categories[20] - The group's operating profit for the year was RMB 3,354,591 thousand, with a pre-tax profit of RMB 2,971,791 thousand and a net profit attributable to equity holders of RMB 2,298,535 thousand[20] - The group achieved a total profit of RMB 2,296,604 thousand for the year, after accounting for income tax expenses of RMB 675,187 thousand[20] Assets and Liabilities - Total assets decreased to RMB 39,804,411 from RMB 40,215,901 in 2023[9] - Total liabilities decreased to RMB 18,658,830 from RMB 19,586,050 in the previous year[11] - Cash and bank deposits decreased to RMB 14,261,723 from RMB 18,189,943 in 2023[9] - The group’s total liabilities were RMB 19,586,050 thousand in 2023, compared to RMB 18,658,830 thousand in 2024, showing an increase of about 5%[26] - The total assets as of December 31, 2023, amounted to RMB 40,215,901 thousand, a decrease from RMB 39,804,411 thousand in 2024, reflecting a reduction of approximately 2.5%[26] Dividends - The company proposed a final dividend of RMB 0.70 per share, unchanged from the previous year[3] - The board declared a final dividend of RMB 0.70 per share, maintaining a stable total dividend payout of RMB 1,626,970,000[53] - The total dividend payout for the year was RMB 1,626,970,000, unchanged from the previous year[40] Sales and Revenue Breakdown - The sales revenue from the sanitary napkin business recorded a decline of about 8.1% to approximately RMB 5,677,965,000, accounting for about 25.0% of total revenue[55] - The sales revenue for the tissue business decreased by approximately 2.4% to about RMB 13.42 billion in 2024, down from RMB 13.75 billion in 2023, primarily due to increased promotional expenses exceeding 10% and a significant drop in raw paper sales by over 26%[59] - The wet wipes business recorded a significant revenue increase of 30.7% to approximately RMB 1.22 billion in 2024, up from RMB 931 million in 2023, capturing about 9.1% of the tissue business sales[63] - The diaper business sales rose by approximately 0.5% to about RMB 1,260,631,000, accounting for about 5.6% of total revenue[67] Market and Sales Strategy - E-commerce and new retail sales accounted for approximately 34.1% of total sales, up from 30.1% in 2023, with a year-on-year sales growth of about 8.0%[51] - The company plans to continue its multi-channel sales strategy and brand optimization, expecting stable revenue in 2025[50] - The company is focusing on high-quality personal care products and expanding its market presence through e-commerce and new retail channels[50] - The company plans to expand its new retail channel share and develop high-quality products while maintaining stable pricing to promote long-term growth and solidify its leading position[58] - The company aims to enhance its market leadership in tissue and hygiene products while focusing on three main business areas: tissue, sanitary napkins, and diapers, to improve brand image and seize opportunities in the "new retail" era[107] Research and Development - The group’s research and development expenses decreased to RMB 209,638 thousand in 2024 from RMB 339,836 thousand in 2023, a reduction of about 38%[29] Financial Management - Financial expenses totaled RMB 567,859,000 in 2024, a decrease of 14.2% from RMB 661,562,000 in 2023[31] - Income tax expenses amounted to RMB 675,187,000 in 2024, down 15.4% from RMB 798,000,000 in 2023[33] - The group recorded an operating foreign exchange loss of approximately RMB 170 million, similar to RMB 180 million in the previous year, primarily due to the depreciation of the RMB against the USD and HKD[80] Corporate Governance and ESG - The company emphasizes the importance of corporate governance and has adhered to the principles of the corporate governance code as per the Hong Kong Stock Exchange, with a commitment to high standards of accountability and transparency[116] - The company achieved an ESG rating upgrade to "A" in 2024 and was included in the Hang Seng Sustainable Development Corporate Benchmark Index for the first time[89] - The company has established a four-tier ESG governance structure to ensure stakeholder value creation and social responsibility[90] - The company is committed to sustainable supply chain practices and has implemented a supplier behavior code to promote ESG performance among suppliers[101] Employee and Operational Efficiency - The group employed approximately 24,000 staff members as of December 31, 2024, with a focus on improving employee compensation and efficiency[83] - The total training hours for employees exceeded 480,000 hours, with 125 individuals promoted to management positions[98] - The company will continue to invest in building a professional and youthful team to improve execution efficiency and operational strategies[107] Future Outlook - The company plans to expand production capacity and upgrade technology in various regions, including establishing a new hygiene product base in Fujian and expanding tissue production capacity in Hunan and Guangdong, with some new capacity expected to be operational by 2025[107] - The company plans to maintain stable pricing strategies amidst ongoing competitive pressures in the domestic hygiene products market in 2025[104] - The company aims to enhance its gross margin by controlling promotional expenses and increasing the proportion of high-end products[104]

Core Viewpoint - UBS reports that despite an increase in market share for Hengan in the tissue paper sector, a decline in sales revenue may be attributed to increased promotional expenses leading to pricing pressure on products [1] Group 1: Sales and Revenue - Management expects stable sales and profits through 2025, with slight growth anticipated in tissue and diaper businesses, while sanitary napkin sales are projected to decline modestly [1] Group 2: Earnings Forecast and Target Price - UBS has revised down Hengan International's earnings forecasts for 2024 to 2026 by 10% to 17% and has lowered the target price from HKD 31.3 to HKD 28.1, while maintaining a "Buy" rating [1]

Financial Performance - Revenue for the six months ended June 30, 2024, was RMB 11,835,893, a decrease of 3.0% compared to RMB 12,204,605 in 2023[15]. - Gross profit margin improved to 33.3% in 2024 from 31.0% in 2023[15]. - Operating profit increased by 11.4% to RMB 1,895,891 from RMB 1,701,681 in the previous year[15]. - Profit attributable to shareholders rose by 14.9% to RMB 1,408,992 compared to RMB 1,225,768 in 2023[15]. - Basic and diluted earnings per share increased to RMB 1.234 from RMB 1.055 in 2023[15]. - Profit for the period increased to RMB 1,403,267,000 in 2024 from RMB 1,226,901,000 in 2023, representing a growth of approximately 14.4%[25]. - Total comprehensive income for the period was RMB 1,421,713,000 in 2024, up from RMB 1,302,471,000 in 2023, reflecting a growth of approximately 9.1%[25]. - The company reported a significant increase in borrowings, with proceeds from borrowings amounting to RMB 19,487,199 in 2024, up from RMB 13,535,887 in 2023, marking an increase of about 43.8%[38]. - The company paid dividends of RMB 797,245 in 2024, slightly down from RMB 813,485 in 2023, a decrease of about 2.0%[38]. Assets and Liabilities - Total assets increased to RMB 46,430,098,000 as of June 30, 2024, compared to RMB 40,215,901,000 at the end of 2023, marking a rise of about 15.5%[30]. - Cash and bank balances rose significantly to RMB 21,023,706,000 in 2024 from RMB 18,189,943,000 in 2023, an increase of approximately 10.1%[30]. - Non-current assets grew to RMB 17,242,475,000 in 2024, up from RMB 13,405,939,000 in 2023, indicating a growth of around 28.0%[28]. - Borrowings increased substantially to RMB 18,258,004,000 in 2024 from RMB 13,907,195,000 in 2023, reflecting a rise of approximately 31.5%[30]. - The Group's total liabilities as of June 30, 2024, were RMB 25,361,328,000, with borrowings constituting RMB 20,670,121,000[103]. Cash Flow and Investments - Cash generated from operations for the first half of 2024 was RMB 1,942,392, down from RMB 2,298,556 in 2023, indicating a decrease of about 15.6%[34]. - Net cash generated from operating activities was RMB 1,558,348, compared to RMB 1,938,954 in the previous year, reflecting a decline of approximately 19.6%[34]. - The net cash used in investing activities was RMB 6,520,453, compared to RMB 2,709,232 in the previous year, indicating a significant increase in cash outflow for investments[34]. - Long-term bank time deposits surged to RMB 5,051,445,000 from RMB 1,438,163,000, representing a significant increase of about 251.5%[142]. - Total cash and bank balances reached RMB 26,075,451,000, compared to RMB 19,628,406,000, indicating a growth of approximately 32.9%[142]. Segment Performance - The Group's total revenue for the six months ended June 30, 2024, was RMB 11,835,893,000, with segment revenues of RMB 3,146,946,000 from sanitary napkin products, RMB 711,624,000 from disposable diaper products, and RMB 6,950,578,000 from tissue paper products[103]. - The Group's segment profit for sanitary napkin products was RMB 1,157,207,000, while disposable diaper products and tissue paper products reported segment profits of RMB 165,432,000 and RMB 29,773,000, respectively[103]. - The total sales of Hengan's three core business segments (tissue paper, sanitary napkins, and disposable diapers) recorded a year-on-year decline of approximately 2.2%, which was better than the overall market decline[199]. Market and Strategic Focus - The company continues to focus on consumer and market needs to enhance brand image and corporate culture[3]. - Hengan International aims to become a global top-tier supplier of daily products through innovation and effective management[3]. - Hengan's market share maintained a leading position in the industry despite fierce competition and aggressive price reductions from both domestic and foreign brands[199]. - The company expanded its market share through effective price stabilization strategies and product line upgrades, tapping into the demand for high-quality personal care products[199]. Financial Management and Risks - The Group's financial risk management policies have not changed since the last year end, and it continues to face various financial risks including market risk, credit risk, and liquidity risk[63][64]. - The Group assessed the adoption of new and amended accounting standards and concluded that they did not have a significant impact on the interim results and financial position[51][54]. - The Group's significant judgements and key sources of estimation uncertainty remain consistent with those applied in the consolidated financial statements for the year ended December 31, 2023[62]. Shareholder Information - Basic earnings per share for the six months ended June 30, 2024, was RMB 1.234, up from RMB 1.055 in 2023, reflecting a growth of 16.9%[117]. - The interim dividend proposed is RMB 0.70 per share, totaling RMB 813,485,000, consistent with the interim dividend of RMB 0.70 per share in 2023[122]. - The total share capital remained unchanged at 1,162,120,917 shares, with a value of RMB 123,345,000 as of June 30, 2024[160].

Investment Rating - The report maintains a **Buy** rating for the company with a target price of **HKD 29.40**, representing a **23.0%** upside from the current price [3][4] Core Views - The company maintains its **leading position** in the industry despite intense competition in the personal care market [2] - Revenue decreased by **3.0%** to **RMB 11.84 billion** in H1 2024, but key upgraded and premium products grew by over **10%**, and e-commerce channels grew by **6.5%**, now accounting for **32%** of total revenue [2] - Gross margin improved by **2.3 percentage points** to **33.73%**, driven by lower raw material costs and growth in premium products [2] - Operating profit and net profit attributable to shareholders increased by **11.4%** and **15.0%** to **RMB 1.89 billion** and **RMB 1.41 billion**, respectively [2] - The company has a strong balance sheet with **RMB 5.41 billion** in net cash [2] Business Performance - Tissue business revenue decreased by **3.1%** to **RMB 6.95 billion**, with volume growing by double digits but average selling price (ASP) declining by **12%** [2] - Tissue gross margin improved by **1.9 percentage points** to **19.6%** [2] - Sanitary napkin business revenue decreased by **2.2%** to **RMB 3.15 billion**, with volume flat and ASP declining by **2%** [2] - Sanitary napkin gross margin improved by **0.9 percentage points** to **62.7%** [2] - Diaper business revenue grew by **7.0%** to **RMB 710 million**, with gross margin improving from **36.0%** to **45.3%**, driven by strong growth in the premium product "Q•MO" [2] Financial Projections - Revenue is expected to decline by **1.6%** in 2024 to **RMB 23.38 billion**, but grow by **2.3%** and **2.1%** in 2025 and 2026, respectively [5] - Net profit is forecasted to decline by **3.6%** in 2024 to **RMB 2.70 billion**, but grow by **5.9%** and **4.4%** in 2025 and 2026, respectively [5] - Basic EPS is projected to be **RMB 2.33** in 2024, **RMB 2.46** in 2025, and **RMB 2.57** in 2026 [5] - The company's P/E ratio is expected to be **9.5x** in 2024, **9.0x** in 2025, and **8.6x** in 2026 [5] Financial Health - The company has a strong balance sheet with a **net cash position** of **RMB 5.41 billion** [2] - Net debt ratio is expected to improve from **-0.07** in 2022 to **-0.48** in 2026, indicating a strong cash position [6] - ROE is projected to increase from **34.1%** in 2022 to **36.0%** in 2026 [6] Dividend Policy - The company has consistently paid a dividend of **RMB 1.40** per share, with a dividend yield of **6.3%** [1][3] - The interim dividend for H1 2024 is **RMB 0.70** per share [2]

Investment Rating - The report maintains a "Buy" rating for Hengan International (1044) with a target price of 31.08 RMB [5] Core Views - Hengan International's 2024H1 performance met expectations, with revenue of 11.836 billion RMB (-3.0% YoY) and net profit of 1.409 billion RMB (+14.9% YoY) [5] - The company's gross margin improved to 33.3% (+2.3pct YoY) due to lower raw material costs and reduced exchange losses [5] - Product structure continued to improve, with high-end product sales growing over 10% in 2024H1 [5] - E-commerce channels performed well, contributing 36.4% to tissue, 25.6% to sanitary napkins, and 53.5% to diaper sales [5] Business Segment Analysis Tissue - Revenue of 6.951 billion RMB (-3.1% YoY) in 2024H1 [5] - Wet wipes revenue grew 20.4% to 592 million RMB, accounting for 8.5% of tissue sales (+1.6pct YoY) [5] - Gross margin improved to 19.6% (+1.9pct YoY) driven by product upgrades [5] Sanitary Napkins - Revenue of 3.147 billion RMB (-2.2% YoY) in 2024H1 [5] - High-end products helped offset industry competition pressure [5] - Gross margin reached 62.7% (+0.9pct YoY) [5] Diapers - Revenue of 711 million RMB (+7.0% YoY) in 2024H1 [5] - New retail and maternal-infant channels contributed 53.3% and 20.0% respectively [5] - Gross margin improved significantly to 45.3% (+9.3pct YoY) due to strong growth of high-end Q•MO diapers [5] Cost and Expense Management - Sales and administrative expenses decreased to 2.472 billion RMB (-3.6% YoY), accounting for 20.9% of revenue (-0.1pct YoY) [5] - Exchange losses reduced by 80.3% [5] Future Outlook - The company is expected to maintain profit improvement through enhanced cost control and product upgrades [5] - Continued focus on high-end product development and new retail channels like Douyin [5] - Maintained net profit forecasts for 2024-2026 at 2.923/3.012/3.203 billion RMB [5]

Revenue and Profit Performance - Revenue for the six months ended June 30, 2024, was RMB 11,835.893 million, a decrease of 3.0% compared to RMB 12,204.605 million in the same period of 2023[3] - The company's overall revenue for the first half of 2024 decreased by 3.0% year-on-year to approximately RMB 11,835,893,000, compared to RMB 12,204,605,000 in the same period of 2023[95] - Group revenue for the six months ended June 30, 2023, was RMB 12,204,605 thousand, with the largest contribution from the tissue products segment at RMB 7,170,110 thousand[48] - Gross profit margin increased to 33.3% in 2024 from 31.0% in 2023[3] - Gross profit increased by 3.9% to approximately RMB 3,936,242,000, with gross margin rising to 33.3% from 31.0% in the first half of 2023[96] - Operating profit rose by 11.4% to RMB 1,895.891 million in 2024 from RMB 1,701.681 million in 2023[3] - Operating profit rose by 11.4% to approximately RMB 1,895,891,000, and net profit attributable to shareholders increased by 15.0% to RMB 1,408,992,000[96] - Profit attributable to equity holders of the company increased by 14.9% to RMB 1,408.992 million in 2024 from RMB 1,225.768 million in 2023[3] - The company's net profit attributable to equity holders was RMB 1,225,768 thousand, with a basic earnings per share of RMB 1.055[48][54] - Net profit for the period was RMB 1,408,992 thousand, contributing to a comprehensive income of RMB 1,430,532 thousand[14] - Basic earnings per share were RMB 1.234 in 2024, compared to RMB 1.055 in 2023[3] - The weighted average number of ordinary shares outstanding for the six months ended June 30, 2023, was 1,162,121 thousand shares[54] Asset and Liability Management - Total assets as of June 30, 2024, were RMB 46,430.098 million, up from RMB 40,215.901 million as of December 31, 2023[10] - Total assets as of June 30, 2023, amounted to RMB 48,397,012 thousand, with cash and bank deposits being the largest component at RMB 26,749,710 thousand[48] - The group's total assets as of June 30, 2024, amounted to RMB 46,430,098 thousand, with cash and bank deposits totaling RMB 21,023,706 thousand[46] - Cash and bank balances increased to RMB 21,023.706 million in 2024 from RMB 18,189.943 million in 2023[10] - Total cash and bank deposits reached RMB 21,023,706,000 as of June 30, 2024, up from RMB 18,189,943,000 at the end of 2023[69] - As of June 30, 2024, the company had cash and bank deposits, long-term bank deposits, and restricted bank deposits totaling approximately RMB 26,075,451,000, an increase from RMB 19,628,406,000 as of December 31, 2023[114] - Total equity increased to RMB 21,068,770 thousand as of June 30, 2024, compared to RMB 20,629,851 thousand at the end of 2023[12] - Total liabilities rose to RMB 25,361,328 thousand, up from RMB 19,586,050 thousand at the end of 2023, primarily due to an increase in borrowings[12] - Total liabilities stood at RMB 25,361,328 thousand, including borrowings of RMB 20,670,121 thousand[46] - Total liabilities as of June 30, 2023, were RMB 28,116,975 thousand, with borrowings constituting the largest portion at RMB 23,859,992 thousand[48] - The company's financial liabilities as of June 30, 2024, totaled RMB 25,060,757 thousand, with short-term liabilities (less than one year) accounting for RMB 22,589,002 thousand[31] - The company's borrowings increased to RMB 20,670,121 thousand as of June 30, 2024, compared to RMB 14,237,625 thousand at the end of 2023[31] - Total borrowings increased by RMB 19,487,199 thousand during the first half of 2024, with repayments of RMB 13,085,006 thousand[77] - The company's debt-to-equity ratio as of June 30, 2024, was approximately 99.1%, up from 69.8% as of December 31, 2023, primarily due to low-cost funding supporting operations[115] Cash Flow and Financing Activities - Cash and cash equivalents increased by RMB 152,374 thousand to RMB 8,180,200 thousand as of June 30, 2024[16] - Cash and cash equivalents, including bank demand deposits and short-term highly liquid investments, totaled RMB 8,180,200,000 as of June 30, 2024[69] - Operating activities generated net cash of RMB 1,558,348 thousand, a decrease from RMB 1,938,954 thousand in the same period last year[16] - Investment activities used net cash of RMB 6,520,453 thousand, mainly due to increased purchases of property, plant, and equipment[16] - Financing activities generated net cash of RMB 5,114,479 thousand, driven by increased borrowings of RMB 19,487,199 thousand[16] - The company completed the issuance of two batches of ultra-short-term financing bills in March 2024, totaling RMB 5 billion, with a coupon rate of 2.1% and a maturity of 180 to 182 days[115] - The company issued two ultra-short-term financing bills totaling RMB 5,000,000 thousand with an interest rate of 2.10% and maturing in September 2024[75] Inventory and Accounts Receivable - Inventory turnover days increased to 38 days in 2024 from 33 days in 2023[3] - Accounts receivable and notes turnover days decreased to 39 days in 2024 from 43 days in 2023[3] - Accounts receivable and notes receivable increased to RMB 2,787,244,000 as of June 30, 2024, from RMB 2,718,998,000 at the end of 2023[66] Financial Risk and Management - The company's financial risk management policies remained unchanged since the end of the previous year[27] - The company's financial liabilities are categorized into maturity groups, with the majority (RMB 22,589,002 thousand) due within one year[31] - The company's financial liabilities are subject to market risk, credit risk, and liquidity risk, with no significant changes in risk management policies[27] - The group's financial risk management team reports directly to the CFO and audit committee, with valuation processes reviewed at least every six months[41] Shareholder Equity and Dividends - Retained earnings grew to RMB 17,839,658 thousand, up from RMB 17,391,515 thousand at the end of 2023[12] - The company paid dividends of RMB 797,245 thousand for the 2023 final dividend[14] - The company declared an interim dividend of RMB 0.70 per share, totaling RMB 813,485,000, consistent with the previous year[97] - The company will pay an interim dividend of RMB 0.70 per share for the six months ended June 30, 2024, unchanged from the previous year[131] - The company will suspend share registration from September 11 to September 13, 2024, for the interim dividend distribution[132] Business Segment Performance - The sanitary napkin product segment contributed the highest revenue at RMB 3,146,946 thousand, followed by tissue products at RMB 6,950,578 thousand[46] - Sales revenue for the sanitary napkin business decreased by 2.2% to approximately RMB 3,146,946,000, but outperformed the overall industry's negative growth[98] - Gross margin for the sanitary napkin business improved to 62.7% in the first half of 2024, up from 61.8% in the same period last year[99] - Tissue business sales revenue decreased by 3.1% YoY to approximately RMB 6,950,578,000 in the first half of 2024, accounting for 58.7% of the company's total revenue[100] - Tissue product gross margin increased to 19.6% in the first half of 2024, up from 17.7% in the same period last year, driven by lower wood pulp costs and higher sales of premium products[100] - Wet wipes business achieved explosive growth with a 20.4% YoY increase in sales revenue to approximately RMB 591,953,000, accounting for 8.5% of the tissue business sales[101] - Wet wipes gross margin reached 52.2%, the highest among tissue products, with strong growth momentum expected to continue[101] - The diaper business sales increased by 7.0% to approximately RMB 711,624,000, with a gross margin of 45.3% in the first half of 2024, up from 36.0% in the same period last year[105] - The adult diaper business accounted for 22.5% of sales, benefiting from the growing domestic adult incontinence market[105] E-commerce and New Retail - E-commerce and new retail sales accounted for approximately 32.0% of total sales, up from 29.0% in the first half of 2023, representing a year-on-year growth of 6.5%[96] - E-commerce and new retail channels sales for tissue business grew over 6.0%, accounting for 36.4% of tissue sales[103] - The new retail channel contributed 36.4%, 25.6%, and 53.5% to the sales of tissue, sanitary napkins, and diaper businesses, respectively[110] - The e-commerce and new retail channels sales grew by 6.5% to over RMB 3.76 billion, accounting for 31.8% of total sales in the first half of 2024[110] Capital Expenditures and Investments - Capital expenditures for the first half of 2024 were approximately RMB 774,423,000, a decrease from RMB 989,348,000 in the first half of 2023, mainly used to increase production capacity[115] - The company's capital commitments for machinery and equipment as of June 30, 2024, were RMB 553,298,000, compared to RMB 539,801,000 as of December 31, 2023[92] - The company's capital commitments for leased land and buildings as of June 30, 2024, were RMB 597,671,000, compared to RMB 729,342,000 as of December 31, 2023[92] - The company's joint venture investments increased by RMB 3,000,000 in the first half of 2024, with a net profit contribution of RMB 1,000[89] Corporate Governance and Compliance - The company adheres to the "Standard Code" of the Listing Rules and confirms full compliance by all directors[134] - The company maintains high corporate governance standards and complies with the "Corporate Governance Code" of the Listing Rules, except for one independent non-executive director who was unable to attend the annual general meeting due to other commitments[135] - The company did not purchase, sell, or redeem any of its listed securities during the six months ended June 30, 2024[133] Employee and Management Compensation - The company employed approximately 24,000 employees as of June 30, 2024, and implemented a more scientific and reasonable "target salary" system to improve employee efficiency[116] - The company's management compensation for the six months ended June 30, 2024, was approximately RMB 13,951,000, compared to RMB 27,003,000 in the same period of 2023[93] - Total employee training hours exceeded 202,300 hours, and 101 employees were promoted to management positions[126] ESG and Sustainability Initiatives - The company's MSCI ESG rating reached "BBB," and it was included in the FTSE4Good Index Series for two consecutive years, reflecting improved ESG transparency and performance[119] - The company focused on green innovation, exploring biodegradable materials and establishing a biodegradability evaluation system to enhance product sustainability[120] - Hengan Group's six paper companies have all obtained FSC/CoC certification, and 100% of pulp suppliers have FSC or PEFC system certificates[124] - Hengan (China) Paper Co., Ltd. was the only company in the tissue paper and tissue paper industry to be selected for the 2023 "Key Industry Energy Efficiency Leader Enterprise List"[124] - Hengan Group has implemented the ISO 45001 Occupational Health and Safety Management System and established a Safety Management Committee[127] - Hengan Group launched the fifth phase of its comprehensive safety work project in the first half of 2024, aiming for "zero hidden dangers, zero violations, and zero accidents"[127] Future Outlook and Strategic Plans - The company expects continued pressure on investment and consumer confidence due to geopolitical tensions, trade frictions, and high interest rates in the second half of 2024[128] - The company expects wood pulp prices to rebound in the second half of 2024 and plans to offset the impact on gross margin by reducing costs, increasing the proportion of high-end products, and improving sales performance[129] - The company will continue to focus on its three core strategies: "focus on main business," "brand leadership," and "long-termism," to ensure sustainable development[129] - The company plans to optimize its product brand image through strategies such as upgrading product quality, changing packaging, and precise marketing resource allocation[129] - The company is implementing technological upgrades, including using IBM's blockchain platform (IBP) to enhance supply chain management efficiency and migrating SAP systems to the cloud[130] - The company plans to expand production capacity and upgrade technology, including establishing a new base in Fujian and expanding tissue production capacity in Guangdong, with some new capacities expected to be operational in the second half of 2024 and 2025[130] Corporate Social Responsibility (CSR) - Hengan Group donated 2,000 hygiene gift packages to female soldiers stationed in the western border of China in January 2024[122] - Hengan Group donated 20 million RMB to the Autism Care Fund through the Quanzhou Charity Federation in April 2024[122] - Hengan Group donated 1,630 gift packages to nurses at Xiamen University Affiliated First Hospital in May 2024[122]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 29.73, which is equivalent to 10.5 times the forecasted earnings per share for 2024 [4][5]. Core Insights - Despite intense industry competition, the company is expected to outperform the industry due to its stable pricing strategy, continuous product upgrades, and increased penetration of high-end products [4][5]. - The company reported a revenue growth of 5.1% to HKD 23.77 billion in 2023, driven by a 12.2% increase in tissue paper sales and a 17.7% growth in e-commerce channels [3][4]. - The gross profit margin decreased by 0.3 percentage points to 33.7% due to rising raw material costs and increased promotional expenses [3][4]. Summary by Sections Financial Performance - In 2023, the company achieved a net profit of HKD 2.80 billion, representing a 45.5% increase compared to the previous year [5][6]. - The operating profit rose by 38.6% to HKD 3.98 billion, with a decrease in operating expense ratio by 0.3 percentage points to 21.3% [3][5]. - The company maintained a robust balance sheet with net cash of approximately HKD 5.39 billion, an increase of HKD 0.86 billion from the previous year [3][4]. Business Segments - Tissue paper business grew by 12.2% to HKD 13.75 billion, benefiting from a nationwide sales network and strong growth in high-end products [4][5]. - Sanitary napkin sales increased by 0.4% to HKD 6.18 billion, with gross margin improving from 61.8% in the first half to 66% in the second half [4][5]. - The adult diaper segment saw a 4.3% growth to HKD 1.25 billion, with gross margin rising from 36% to 40% due to lower raw material prices [4][5]. Future Outlook - For 2024, the company anticipates low single-digit revenue growth in tissue paper, sanitary napkins, and adult diapers, despite ongoing competitive pressures in the personal care industry [4][5]. - The report highlights that the company’s stable pricing strategy and product upgrades are expected to help it outperform the industry amid challenging market conditions [4][5].