hengan international (1044 hk) buy superior returns ... · 11/29/2016 · units per year per...

November 29, 2016

Cons

umer

Sta

ples

Ch

ina

THIS REPORT HAS BEEN PREPARED BY KIM ENG SECURITIES (HK) LTD SEE PAGE 1 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Jacqueline Ko, CFA [email protected] (852) 2268 0633

Hengan International (1044 HK)

Superior returns sustainable

Attractive risk to reward, TP raised 22% Reiterate BUY. We raised our EPS by 1-3% to factor in the recent share buyback and our higher diaper sales assumption. The latter is due to the baby boom in China and as the threat from imports has eased under the higher import taxes. We expect Hengan to remain the market leader across major segments, supported by its new products and better infrastructure. We expect better sales initiatives, manageable input cost pressure and disciplined opex control to support our 8-9% EPS growth for FY17-18F. New target TP raised to 22x from 18x FY17F PER, or from 1 SD below historical average to par. Our EPS are 12-14% above the Street.

High return metrics sustainable We believe Hengan’s de-rating over the past 12 months was due to concerns of a revenue growth bottleneck and the sustainability of margins. However, we offer rebuttals in this note to argue that Hengan’s high-return metrics will be sustainable and that its ROIC and EVA spread should remain in the first quartile among peers. Furthermore, we expect improving cost efficiencies and revenue growth in the medium to long term with the firm-wide adoption of the SAP EPR system in 2017-2018 and from the advice of external market consultants.

Three trends: aging, “she” rise and baby boom We expect China’s baby boom to increase the size of the infant products market, such as diapers. As for sanitary napkins, while the addressable population (aged 15-50) will decline over the next decade, we believe the rise of night-use napkins sales (c. 15% of total consumption in China vs. 30% in HK) will be the next growth trend. And more importantly, for incontinence products, while insignificant in Hengan’s sales, opportunities could be massive given just 3% penetration rate in China.

Positive changes brewing; catalysts in place We have turned more constructive on Hengan following the 1H16 results as we are seeing positive changes by management. Of note, more focus will be put on its weak sales areas, such as night-use napkins (~10% of its napkins sales) and products dedicated to mature customers. Also, we believe disintermediation and more specialized allocation of responsibility have been responsible for the initial success of its e-commerce sales. Meanwhile, price segmentation (ie, to fit products with right price positioning) in the baby store channel has improved sales.

Share Price HKD 62.40

12m Price Target HKD 85.80 (+38%)

Previous Price Target HKD 70.58

BUY

Company Description

Statistics52w high/low (HKD)3m avg turnover (USDm)Free float (%)Issued shares (m)Market capitalisation

Major shareholders:18.9%18.5%1.8%

1,207

20.6

Hengan is a leading player in PRC household andpersonal care(HPC) market, key segments includetissue paper, sanitary napkins and disposable diapers.

SZE MAN BOK HUI LIN CHIT BlackRock Fund Advisors

79.45/59.00

59.2

HKD75.3BUSD9.7B

Price Performance

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Hengan Int'l - (LHS, HKD) Hengan Int'l / Hang Seng Index - (RHS, %)

-1M -3M -12MAbsolute (%) 1 (8) (20)

Relative to index (%) 1 (8) (23)

Source: FactSet

FYE Dec (CNY m) FY14A FY15A FY16E FY17E FY18E Revenue 20,026 20,547 20,423 21,513 22,593 EBITDA 5,454 5,849 6,448 6,817 7,244 Core net profit 3,291 3,404 3,935 4,196 4,557 Core EPS (CNY) 3.19 3.31 3.23 3.48 3.78 Core EPS growth (%) 5.5 3.9 (2.5) 7.8 8.6 Net DPS (CNY) 2.00 2.09 2.04 2.19 2.38 Core P/E (x) 17.4 16.8 17.2 16.0 14.7 P/BV (x) 3.9 3.9 3.9 3.5 3.2 Net dividend yield (%) 3.6 3.8 3.7 3.9 4.3 ROAE (%) 20.5 22.5 23.8 22.4 22.3 ROAA (%) 8.7 9.9 12.3 13.3 13.9 EV/EBITDA (x) 12.2 10.7 10.2 9.4 8.6 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Consensus net profit - - 3,612 3,804 4,047 MKE vs. Consensus (%) - - 8.9 10.3 12.6

November 29, 2016 2

Hengan International

Superior return metrics sustainable, compelling valuations

Share price performance weighed down by peers

We believe peer Vinda (3331HK, HOLD, TP HKD16.56)’s poor 3Q16 results as well as global peers’ quarterly earnings miss in Oct-16 have been the key reasons behind Hengan’s share price weakness. To recap, Vinda’s 3Q16 organic sales growth (ex M&A & FX) decelerated to 7.4% from 17.8%/11.3% in 1Q/2Q, respectively. However, in contrast, Hengan should have seen a slight acceleration in its tissue top line growth over the past several months. We believe this is due to more new products and better packaging. Other than that, we believe seasonality among the two players could be more substantial than the past and hence quarterly numbers could be non-comparable. For instance, Vinda generated much higher sales from its e-commerce channel while Hengan’s presence remains much lower. The peak season for e-commerce sales is in 4Q.

Fig 1: Global personal care and household names’s fwd PER de-rated since Oct

Source: Bloomberg

Fig 2: Compelling PER(x) against HPC (household & personal care) peers

Source: Bloomberg, Maybank Kim Eng

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Uni-charm Kao SCA Vinda P&G Hengan

We believe Hengan’s share price underperformance was due to the de-rating of global peers and concerns of a rebound in petrochemical costs. Nonetheless, our channel checks suggest Hengan’s 3Q16 sales and margin trend are on track.

Peers are trading at high-teens forward PER. Vinda, like other outliers, is trading at a higher multiple as it is projected to increase earnings by double digits over the next two years.

November 29, 2016 3


Fig 3: Consensus net profit growth forecast, YoY

Source: Bloomberg

Fig 4: Hengan’s superior and consistent ROAIC against HK-listed staples peers

Source: Bloomberg, Maybank Kim Eng estimates

Fig 5: Hengan’s higher P/BR is supported by its superior ROE


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Uni-charm Kao SCA Vinda P&G Hengan

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Hengan’s net profit growth is in line with most of its global peers.

We project Hengan’s ROAIC (return on average invested capital) to be high at 28% over FY16-18F while Want Want China’s (151 HK, HOLD, TP HKD4.4) should deteriorate from 30% to 26% over the same period.

We project Hengan to maintain over 20% ROE over FY16-18F, as we see positive changes in its strategy to support the topline and sustain margins.

November 29, 2016 4


Fig 6: Our staples coverage universe- EV/IC vs. EVA spread


Fig 7: Street’s downward earnings revision on Hengan to stabilise

Source: Bloomberg consensus

Fig 8: Hengan forward PER band (2010 to present)

Source: Factset, Maybank Kim Eng estimates

China Foods

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Hengan

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UPC Vinda

WWC

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Hengan generates positive and sustainably high EVA vs peers.

We expect the Street’s downward earnings revision cycle to end as current forecasts are much more realistic.

Hengan is now trading at low end range of its historical forward PER (16x). We believe re-rating likely in next 12 months as market concerns about Hengan's structural pressure eases.

November 29, 2016 5


Baby boom in China

Raised EPS by 1-3%, TP raised 22% (38% upside)

As mentioned, we raised our FY16-18F EPS by 1-3% to factor in higher diaper sales due to the baby boom in China and the shares buyback. Our diaper sales growth assumption has been revised to (8%)/3%/3% for FY16/17/18F, from (11%)/(12%)/(12%) previously. Official data shows infants in China between the ages of 0-36 months use only 360 units per child per year. This is well below the level in Europe and the US (1,000 units per year per child). Euromonitor is forecasting diaper sales in China to grow by 13.8% CAGR during 2015-2020, which does not take into consideration the relaxation of the one-child policy. Fig 9: Total baby nappies/diapers/pants sales in China

Source: National Statistic of Bureau, China Paper Industry Association

We expect the top five brands (namely P&G, Kimberly Clark, Uni-charm, Kao and Hengan) to continue to dominate the diaper market in China. Combined, they should continue to control about 70% of China’s market. Given relaxation of the one-child policy and as 2016-17 are seen in China as auspicious years for giving birth (ie Year of the Monkey and Year of the Rooster), we see incremental net addition of 10m new-borns over the next two years. Overall, this should boost diaper demand and reduce price competition in the sector, in our view.

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YoY growth mil pieces Total baby diapers consumption YoY growth(%)Euromonitor estimates nappies/diapers/pants retail sales in China reached CNY45.7b (+11% YoY) in 2015. It projects 13.8% industry sales CAGR over 2015-2020.

November 29, 2016 6


Fig 10: Forecast of number of new born (million) (2016F-2030) with relaxation

Source: Forecast by Chinese Academy of Social Sciences (CASS)

Fig 11: YoY change in value and volume of imported diapers

Source: WIND, China Custom

Margin pressure manageable We maintain our gross profit margin (GPM) forecasts for Hengan’s various product segments. This is because we believe soft wood pulp (30% of COGS) and fluff pulp (5-6% of COGS, a derivative of long fibre softwoods) prices can buffer higher petrochemical prices (25-30% of COGS). Even though we had expected a sharp rebound in acrylic acid price (a key raw material for SAP [super absorbent polymer]) since Aug-16, our last discussion with management in late Oct-16 suggests that overall quotations for its petrochemical inputs remain stable vs levels in Aug and Jun-16. We believe its product mix upgrade should help offset any negative impact, as its sales are largely driven by mid to high-end products, which have much higher profit margins.

15.841 15.871 15.584 15.566 15.34

15.031 14.564 14.286

13.663 13.105 12.695 12.36

12.072 11.646 11.502

5.658 5.832

3.935 4.213 4.265

3.917 2.803 3.517

3.064 3.677

2.838 3.221

3.325 2.629 2.542

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1H16 new born number increased by 6.9ppt YoY to 8.31 million. It is expected to surge to 13.2m in 2H16 as relaxation impact start to surface. Total new born is expected to peak at 21m in 2016-17 and stay at 19-20m until year 2021.

We believe the decline in diaper imports in China in recent months was due to the higher tax rate. We expect the threat from imports to decline in the near term.

November 29, 2016 7


Fig 12: Hengan GPM trend(%) (FY14-FY18F)

Source: Company data, Maybank Kim Eng estimates

Fig 13: Asian Forex Index- NBSK & BHKP wood pulp prices

Source: WIND

Fig 14: Acrylic acid ex-factory price (CNY/ton) of different manufacturers

Source: WIND

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Overall Sanitary napkins Disposable diapers Tissue paper

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We project Hengan’s overall GPM to expand by 1.3/0.3/0.2 ppt YoY in FY16/17/18F, while the Street is looking for a slight decline over the next two years.

Wood pulp accounts for 30% of Hengan’s total COGS or 50% of tissue segment’s COGS. According to Bloomberg Intelligence, both softwood and hardwood prices could be restrained by capacity expansion.

Acrylic acid is a key raw material for super absorbent polymer. We estimate it accounts for 20% of diaper’s COGS. Other than oil price rebound, the explosion of BASF’s chemical plant recently could be one of the reasons for the price surge.

November 29, 2016 8


Fig 15: Domestic polypropylene prices

Source: WIND

Fig 16: Domestic LDPE future prices

Source: WIND

Some trends the market is missing…

Sanitary napkins: night use and more frequent use are the future market

We believe the market is worried about Hengan as the sanitary napkins market is shrinking as there will be fewer young females entering their mensuration period than those that are ending their mensuration period in the upcoming decade. Near term, volume growth of sanitary napkins is limited given the already high penetration rate (at 87%) in China. However, we believe the market has missed the huge opportunity from product mix upgrade. For example, there is a growing proportion of users that also use night-use towels (retail sales contribution 15% against 30-40% for more developed peers) and they are upgrading from standard towels (30% of total) to ultra-thin towels. Of note, with Hengan putting more effort into night-use napkins (its sales contribution up from single digit to ~10% latest) as well as launching new products to attract more mature customers, its product mix story still has further room to grow.

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Polypropylene is a raw material for non-woven fabrics, which accounts for 15-20% of diaper’s COGS.

LDPE is a major material for the back-sheets used in diapers. It is estimated to be 10% of diaper’s COGS.

November 29, 2016 9


Fig 17: Female population (million person) in China - breakdown by age range (0-49)

Source: CEIC, National Statistic of Bureau

Fig 18: Retail sales value of night-use towels as a % of the total market

Source: Euromonitor

Fig 19: Low market concentration among top players of China’s sanitary napkin market

Source: Euromonitor

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China HK Singapore Malaysia

Hengan(Space 7 & Anerle, 11.6%

Uni-Charm(Sofy),

8.5% P&G(Whisper),

6.8%

Kimberly-Clark(Kotex),

2.6% Kingdom

Marketing(ABC), 1.7%

Kao(Laurier), 1.6%

Others, 67.2%

Over the next decade, around 10m women in China won’t require sanitary napkins as their mensuration period will end.

Usage of night-use sanitary napkins in China is well below the more developed regional markets, as customers in China tend to want to save money by using day-use towels at night time as well.

We expect upside from consolidating the fragmented market outweighs risk of threat from multinationals.

November 29, 2016 10


Mix upgrade even within the same series is not impossible

While mid-high end brand Space Seven accounts for over 90% of Hengan’s sanitary napkin sales, we see further room for mix upgrade as: i) there are four series, namely young ladies, elegance, princess and mushroom under this brand. The young ladies range is the cheapest among the Space Seven series (comparable product price per piece is ~50% lower than the other three series) and should make up the biggest share of segment sales given its longest history; therefore, growing sales contribution from the other three series over the young ladies series can boost margins and overall ASP; ii) upgrade from cotton oversheet to silky dry cover and ultra-thin etc; iii) growing sales from night-use napkins, given comparable night-use products within the same series command a 25% price premium over the day-use products, while at a discount against MNC peers. We believe Hengan’s competitive pricing can attract those new to the night-use towels market which are much more price sensitive. Fig 20: Prices of Hengan’s Space Seven day-use and night-use napkins

Source: Tmall

Comparable products (same series and same material) but night-use sanitary napkins cost 25% more than day-use sanitary napkins.



Fig 21: Hengan’s comparable night-use products cost less than MNC’s

Source: Tmall

Fig 22: Hengan is speeding up new launches and innovation to help sustain its market leadership

Source: Company Weibo

Hengan’s night-use sanitary napkins, such as its 420mm extra-long pads, are priced at CNY1.78/piece to CNY2.5/piece against Sofy’s CNY2.11/piece and Kotex’s CNY3.37/piece.

Hengan has launched the “Little Dog & Cat series”, which is dedicated to the e-commerce channel. Meanwhile, in early 2016 the company also launched a candy mini-pack to appeal to the new generation.



#2. Incontinence market the new focus for the next decade

Although there are no disclosures, we estimate Hengan’s sales of incontinence products reached CNY100m in 2015, or only 0.5% of its total sales. However, given China’s aging population (group aged above 65 surpassed 10% of China’s population) and rising awareness amid better consumer education, the size of China’s incontinence market is estimated to grow by at least over 20% CAGR over 2015-2020 to reach CNY4b. The current penetration rate in China is only around 3%. This is compared to the global average of 12% or 60-80% in Japan, Western Europe and North America. Furthermore, with more health issues such as diabetes and obesity arising from unhealthy diets and lifestyles, the demand for light incontinence products should also see rapid growth. Worth noting is that Hengan currently ranks No.1 in this sub-segment and we see it has an early mover advantage. Fig 23: Market share of China’s incontinence market

Source: Euromonitor

Fig 24: Aging population in China

Source: WIND, National Statistic of bureau

Hengan(Elderjoy), 16.0%

Vinda/SCA(Dr. P), 12.3%

Hanzhou Coco(Coco

Incontinence), 11.0%

Kimberly-Clark(Depend),

5.3%

Hangzhou Shutai(Qianzhiya

), 4.7%

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Current market size in China (retail sales value) is estimated to be CNY1.5b as of 2015 with a consumption volume of 2.9b pieces.

In China, population aged over 65 reached 10.5% of the total in 2015.



Fig 25: Aging population in China

Source: WIND, National Statistic of bureau

#3. Tissue paper- growing usage & more non-toilet rolls

As the per capita use of tissue paper in China remains low at 4-5kg per person vs 14kg in North America and 8.7kg in Western Europe, we believe market growth remains structural as hygiene awareness and away-from-home usage increases. For instance, the demand for paper handkerchiefs and wet tissues should increase, and users should change from using toilet rolls to tissue paper with better packaging. The market size in China is expected to grow by 7% CAGR from 2016-2020 and reach CNY138b. We assume only 4% sales growth for Hengan’s tissue paper segment over FY17-18F due to its low online sales exposure. Other than that, peers such as Vinda or C&S either have better products or a better sales team following their revamp, while Hengan has been relatively static. Therefore, we conservatively project Hengan’s tissue sales growth will lag peers. Fig 26: Retail sales of tissue paper by category in China (2015)

Source: Euromonitor

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Life expectancy has increased for both male and female over last decade.

Toilet paper accounted for 73% of industry retail sales in China in 2015, which was the highest in the region.



Fig 27: PRC tissue paper industry market share by company (2011-2015)

Source: Euromonitor

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Our major assumptions

Fig 28: Our assumptions for sales estimates

FY14A FY15A FY16F FY17F FY18F

Sales (CNYm) Sanitary napkins 6,241.8 6,456.6 7,048.5 7,612.3 8,145.2 Disposable diapers 2,600.5 2,558.6 2,350.9 2,421.4 2,494.0 Tissue paper products

9,123.8 9,075.8 9,565.7 9,948.3 10,346.3

Food & snacks 1,289.7 1,064.8 0.0 0.0 0.0 Others 770.1 1,390.8 1,458.1 1,531.0 1,607.6 Total 20,025.9 20,546.6 20,423.2 21,513.1 22,593.1 Growth rate (%) Sanitary napkins 4.5% 3.4% 9.2% 8.0% 7.0% Disposable diapers -11.5% -1.6% -8.1% 3.0% 3.0% Tissue paper products

-10.6% -0.5% 5.4% 4.0% 4.0%

Food & snacks -19.6% -17.4% N/A N/A N/A Others 65.0% 80.6% 4.8% 5.0% 5.0% Total -5.5% 2.6% -0.6% 5.3% 5.0% Sales mix (%) Sanitary napkins 31.2% 31.4% 34.5% 35.4% 36.1% Disposable diapers 13.0% 12.5% 11.5% 11.3% 11.0% Tissue paper products

45.6% 44.2% 46.8% 46.2% 45.8%

Food & snacks 6.4% 5.2% 0.0% 0.0% 0.0% Others 3.8% 6.8% 7.1% 7.1% 7.1% Source: Company data, Maybank Kim Eng estimates

Fig 29: Our gross margin assumptions for different segments a FY14A FY15A FY16F FY17F FY18F Overall 46.1 47.6 48.9 49.2 49.4 Sanitary napkins 68.5 72.6 71.9 72.0 72.0 Disposable diapers 45.3 49.3 49.9 50.0 50.0 Tissue paper products 34.5 35.6 38.0 38.0 38.0 Food and snacks 42.4 42.2 0.0 0.0 0.0 Others 11.1 11.0 7.0 7.0 7.0 Source: Company data, Maybank Kim Eng estimates

Fig 30: Major OPEX ratios assumptions As % of sales FY14A FY15A FY16F FY17F FY18F Distribution cost 20.3 18.2 19.0 18.5 18.5 Admin expenses 6.55 7.03 7.02 6.60 6.30 Total OPEX 26.9 25.3 25.3 25.1 24.8 Source: Company data, Maybank Kim Eng estimates

We only raised our sales growth forecasts for disposable diapers given the baby boom in China and reduced threat from imports. Other than that, we see Hengan could do a better job in this space given its price segmentation strategy in baby stores and disintermediation through the e-commerce channel, which could boost sales efficiency.

We maintain our segment GPM forecasts following our last update with management a month ago.



Potential market growth

Fig 31: PRC retail sales growth CAGR (2016-2020) by categories

Source: Euromonitor

Fig 32: Top five players’ market share in China(2015)

Source: Euromonitor

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Sanitary protection Tissue paper Diapers Incontinence

Euromonitor projects China’s tissue paper, baby diapers and sanitary napkins markets to grow by 6.6%/13.8%/5.6% CAGR over 2016-2020.

We see massive room for market consolidation in the sanitary protection and tissue paper space.

H

engan International .

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ovember 29, 2016

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Fig 33: Global consumer staples sector valuation – HPC ----------------

Market 3m Px

Performance PER P/BV ROE ROA EV/EBITDA Dividend Yield EPS FY15-18F

CAGR PEG GPM NPM Net

Gearing

Price Cap ADTV 1m 3m FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E 3m chg EPS FY16E FY16E FY16E 2015 Company Ticker (lcy) (USDm) (USD) (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) (x) (x) (%) (%) (%) (%) (x) (%) (%) (%) HK/China Hengan Int. (BUY) 1044 HK 60.00 9,383.8 20.8 (4.4) (9.6) 18.0 17.1 4.1 3.7 23.4 22.5 11.9 12.5 11.7 11.2 3.6 3.7 (4.2) 4.0 4.5 48.8 18.0 Net cash Vinda Int. (HOLD) 3331 HK 15.48 2,947.8 1.7 (8.3) (2.1) 21.9 19.8 3.0 2.7 14.1 14.3 10.9 11.1 10.3 9.6 1.8 2.0 (2.3) 9.2 2.4 82.8 9.4 Net cash China Child (Not-rated) 1259 HK 15.00 2,198.7 0.7 (9.1) 0.0 25.3 21.2 2.4 2.2 10.2 10.7 4.6 4.8 14.5 12.5 1.1 1.3 1.4 9.3 2.7 31.3 5.3 87.8

Goodbaby (BUY) 1086 HK 19.61 1,434.6 10.2 (3.3) 8.3 40.6 27.8 3.6 3.2 9.0 11.8 4.4 6.1 18.5 15.0 0.3 0.3 7.8 71.9 0.6 34.3 6.1 29.0 L'Occitane (Not-rated) 973 HK 3.83 550.7 1.4 (2.5) 8.8 16.2 12.5 1.6 1.5 10.4 12.5 4.3 5.6 8.3 6.8 1.9 2.3 (7.1) 29.5 0.5 32.9 3.7 28.2

Market-weighted average 13.1 (5.6) (4.8) 21.5 18.9 3.5 3.2 18.3 18.2 9.8 10.4 12.3 11.2 2.6 2.8 (2.2) 12.4 3.4 50.7 13.3 15.2 Simple average 7.0 (5.5) 1.1 24.4 19.7 2.9 2.7 13.4 14.4 7.2 8.0 12.7 11.0 1.7 1.9 (0.9) 24.8 2.2 46.0 8.5 48.3 Japan Ci:Z Holdings 4924 JP 2,898.00 1,244.7 3.3 (3.6) 10.5 24.2 23.7 4.6 4.1 19.9 19.0 16.5 15.2 13.9 13.0 1.6 1.8 (1.3) 9.6 2.5 79.3 13.6 Net cash Fancl Corp 4921 JP 1,590.00 915.2 3.2 (3.2) (7.3) 16.4 27.5 1.4 1.4 8.6 3.7 6.8 3.1 12.9 8.4 3.6 3.6 (4.4) 26.9 0.6 70.3 6.1 Net cash Kao Corp 4452 JP 5,094.00 22,672.5 115.5 (10.8) (3.2) 20.8 19.3 3.5 3.2 17.6 17.4 10.2 10.0 10.0 9.4 1.8 2.0 (1.1) 12.7 1.6 56.2 8.3 Net cash Kobayashi Pharma 4967 JP 5,160.00 3,875.6 11.2 (3.6) 14.9 28.9 26.6 2.9 2.6 9.7 10.5 10.2 9.8 17.7 15.2 1.0 1.0 2.2 9.2 3.2 58.2 12.1 Net cash Kose Corp 4922 JP 9,400.00 5,029.9 23.3 (2.9) (0.2) 24.1 21.3 3.3 2.9 14.4 14.8 9.5 10.0 10.9 9.9 1.1 1.2 (4.6) 32.4 0.7 75.7 8.6 Net cash Lion Corp 4912 JP 1,907.00 5,037.3 30.5 10.2 35.9 36.9 31.9 3.8 3.5 10.7 11.4 6.2 6.6 14.7 14.0 0.6 0.7 8.9 19.1 1.9 58.8 3.8 Net cash Mandom Corp 4917 JP 4,855.00 1,034.8 3.0 2.4 15.7 21.7 20.1 1.8 1.7 8.4 8.6 6.5 6.8 8.6 8.0 1.8 1.9 0.6 11.0 2.0 54.9 6.7 Net cash Pigeon Corp 7956 JP 2,914.00 3,130.6 20.3 (2.2) 8.8 33.8 29.9 6.6 5.9 20.4 21.3 17.5 19.4 19.3 17.3 1.7 1.8 (0.1) 16.1 2.1 48.0 11.1 Net cash Pola Orbis Holdings 4927 JP 8,860.00 4,482.1 19.1 (0.1) 5.6 27.2 25.5 2.6 2.5 9.8 10.1 7.0 7.5 13.3 11.8 2.3 2.5 (0.2) 14.6 1.9 81.0 8.0 Net cash Shiseido Co Ltd 4911 JP 3,008.00 10,625.5 37.0 11.8 18.5 38.5 36.5 2.9 2.8 8.0 7.6 4.0 3.7 16.0 13.0 0.7 0.9 (2.9) 4.9 7.9 75.4 3.6 Net cash Unicharm Corp 8113 JP 2,333.50 12,793.6 46.1 (5.5) (6.2) 32.5 27.5 3.4 3.1 10.7 12.0 7.5 8.2 13.1 12.0 0.7 0.7 (2.9) 11.7 2.8 45.7 5.8 Net cash Market-weighted average 57.5 (2.5) 5.1 28.4 25.9 3.4 3.2 13.2 13.4 8.6 8.7 13.0 11.6 1.3 1.4 (1.0) 13.4 2.9 60.7 7.2 Net cash Simple average 28.4 (0.7) 8.5 27.7 26.3 3.3 3.1 12.6 12.4 9.3 9.1 13.7 12.0 1.5 1.7 (0.5) 15.3 2.5 64.0 8.0 Net cash Europe Beiersdorf Ag BEI GR 77.38 20,647.8 31.4 (3.5) (6.9) 25.5 23.7 3.8 3.3 15.4 14.7 9.4 9.3 15.6 14.5 0.9 0.9 1.5 6.4 4.0 58.6 10.2 Net cash Henkel Ag & Co Kgaa HEN GR 94.27 46,363.9 8.5 (6.0) (6.2) 18.0 16.3 2.8 2.5 15.8 16.1 9.7 9.4 13.1 11.8 1.6 1.8 1.0 8.4 2.1 48.6 12.0 Net cash L'Oreal Sa OR FP 161.85 96,221.4 93.7 (2.3) (5.2) 25.1 23.5 3.7 3.4 14.7 14.9 10.2 10.8 14.8 13.9 2.0 2.2 0.0 6.0 4.2 71.6 14.0 Net cash Oriflame Cosmetics ORI SS 232.50 1,401.9 7.5 (29.5) (11.6) 20.7 16.4 6.5 5.4 37.7 39.1 9.0 11.7 10.1 8.7 3.2 4.6 (3.6) 30.5 0.7 70.5 5.4 110.8 Pz Cussons Plc PZC LN 310.30 1,659.9 0.1 (10.3) (9.0) 18.3 17.0 2.3 2.3 13.4 14.3 5.9 n.a. 12.1 11.3 2.7 2.9 0.0 3.2 5.6 39.0 9.1 31.7 Reckitt Benckiser RB/ LN 6,817.00 59,606.6 13.2 (5.9) (8.4) 23.1 20.3 6.6 5.9 28.6 29.8 12.4 13.6 17.3 15.0 2.2 2.6 1.1 12.3 1.9 60.5 21.4 24.3 Svenska Cellulosa Ab SCAB SS 245.70 18,729.2 48.3 (2.6) (8.0) 18.7 17.2 2.4 2.2 10.5 13.3 4.9 6.2 11.0 10.0 2.5 2.8 1.5 7.5 2.5 26.5 7.9 37.1 Market-weighted average 48.1 (4.2) (6.6) 22.8 20.8 4.2 3.8 18.2 18.8 10.1 10.7 14.8 13.5 2.0 2.2 0.7 8.2 3.1 59.8 14.6 9.6 Simple average 29.0 (8.6) (7.9) 21.3 19.2 4.0 3.6 19.4 20.3 8.8 10.2 13.4 12.2 2.2 2.5 0.2 10.6 3.0 53.6 11.4 51.0 Americas Avon Products Inc AVP US 5.68 2,485.1 31.1 (17.6) (0.4) 43.4 16.3 (2.9) (3.4) 6.3 (44.5) (2.1) 6.0 8.6 7.5 1.2 0.8 (10.3) 249.8 0.2 60.3 0.9 Net cash Clorox Co/The CLX US 117.22 15,091.3 120.8 (2.0) (10.6) 21.9 20.6 60.5 63.1 n.a. n.a. 15.5 15.6 13.2 12.6 2.8 2.9 (2.6) 10.0 2.2 44.9 11.8 n.a. Church & Dwight Co CHD US 45.06 11,652.7 81.9 (6.3) (9.6) 25.7 23.8 5.5 5.3 21.7 22.4 10.9 11.5 14.9 14.2 1.6 1.7 (0.8) 7.7 3.3 45.7 13.2 35.6 Colgate-Palmolive CL US 66.53 59,134.7 234.7 (6.7) (10.9) 23.6 21.5 n.a. n.a. n.a. n.a. 21.3 22.3 14.5 13.5 2.3 2.5 0.2 6.0 3.9 60.3 16.6 Net cash Coty Inc COTY US 19.88 14,836.9 317.1 (14.0) (28.1) 22.1 18.5 2.3 2.5 11.0 24.2 4.3 4.5 15.1 12.2 1.7 2.4 (19.5) 3.7 5.9 61.6 7.6 214.1 Estee Lauder Cos EL US 78.65 28,820.5 151.2 (8.7) (13.8) 23.0 20.6 9.8 9.7 36.8 47.9 13.6 14.4 13.2 12.2 1.6 1.9 (1.3) 11.7 2.0 80.6 10.7 2.7 Kimberly-Clark Corp KMB US 115.84 41,488.7 211.5 1.9 (9.8) 19.3 18.2 n.a. n.a. n.a. n.a. 15.0 15.4 12.1 11.5 3.2 3.3 (1.3) 5.7 3.4 36.4 11.9 n.a. Nu Skin Enterprises NUS US 53.93 2,936.6 45.4 (12.9) (8.4) 18.5 16.2 4.4 5.1 22.4 21.3 11.9 12.0 8.2 7.6 2.6 2.8 1.7 9.2 2.0 78.3 7.7 Net cash Procter & Gamble PG US 83.46 223,338.3 1,974.5 (4.0) (5.1) 21.5 19.9 3.8 3.8 19.2 19.0 9.1 8.8 13.9 13.3 3.3 3.5 (0.6) 3.6 6.0 51.1 16.1 29.7 Market-weighted average 1,190 (4.7) (8.2) 22.0 20.1 5.4 5.4 14.6 15.5 11.9 12.1 13.8 12.9 2.9 3.1 (1.4) 6.7 4.8 53.3 14.6 25.8 Simple average 352.0 (7.8) (10.7) 24.3 19.5 11.9 12.3 19.6 15.0 11.0 12.3 12.6 11.6 2.3 2.4 (3.8) 34.2 3.2 57.7 10.7 70.5 Source: Bloomberg consensus



Value Proposition

Hengan is a leading manufacturer in China of sanitary napkins, tissue papers and disposable diapers. It covers over 1m points of sales nationwide.

Company derives 50-60%+ of its operating profit from sanitary napkins, around one third from tissue paper, rest from disposable diapers.

Risks include: i) tissue industry oversupply & weak brand loyalty ii) narrowing price competitiveness of its diapers & sanitary napkins to MNCs’ iii) channel strength shift.

We have seen more positive and active change in new products and sales strategy, therefore we expect Hengan can maintain its first-class return and solid sales outlook.

Hengan-ROIC (%) trend C

Source: Company data, Maybank Kim Eng estimates S

Price Drivers

Hengan’s historical share price trend

Source: Factset, Maybank Kim Eng

1. Re-rated on expectation of huge net profit jump YoY in

2012 results. FY12 net profit surged 33% YoY. 2. Oversupply in tissue industry emerged; softwood pulp

(NBSK) price rebounded after 4Q13. 3. Rally on theme of beneficiary of low petrochemicals cost

along with oil price correction. 4. Management guided down Street’s sales expectation

given the destocking of sanitary napkins in 1H15. 5. Share price corrected on concerns over further CNY

weakness. 2Q-3Q strength in wood pulp price could hit 4Q’s tissue GPM.

Financial Metrics

Hengan’s EBIT margin will likely stay high at 28% or above over FY16-18F. FCF yield is expected at 5-7%.

We see competition in sanitary napkins space less worrying than we had anticipated, as market remains fragmented and MNCs still don’t have a meaningful presence yet.

We expect upcoming full completion of SAP system roll-out on group-level in 2017F to shave 50bps off the distribution cost to sales ratio.

Hengan’s COGS breakdown.

Source: Company data, Maybank Kim Eng estimates

Swing Factors

Upside

Soft raw materials cost (wood pulp, petrochemicals) and CNY vs USD strength are positive to Hengan’s earnings. Key raw materials account for over half of its COGS.

Faster-than-expected industry consolidation in the oversupplied tissue sector; trade-up demand for sanitary napkins and diapers benefits segments’ profitability.

Completion of operation process upgrade (IT, logistics, and inventory management) and warehouse-sales channel integration in FY16F could help cost savings.

Downside

Any unexpected rebound in wood pulp and petrochemical prices could squeeze margins. Any irrational price competition from peers could pressurize its sales.

Hengan sells 70%+ of its products to distributors. Further sales shift to online channel is negative to Hengan given its limited e-commerce sales presence.

Unexpected market share loss may threaten the current rich margin and return.

[email protected]

22%

23%

24%

25%

26%

27%

28%

29%

30%

FY14 FY15 FY16F FY17F FY18F

65707580859095100105110115

556065707580859095

100105

Nov-11 Nov-12 Nov-13 Nov-14 Nov-15

Hengan Int'l - (LHS, HKD)

Hengan Int'l / MSCI AC Asia ex JP - (RHS, %)

Wood pulp, 30.0%

Petrochemical, 25.0%

Pckaging, 10.0%

Other raw materials,

10.0%

Labour, 5.0%

Depreciation, 5.0%

Utilities, 7.0%

Others, 3.0%

Fluff pulp, 5.0%

1

2

3 5

4

mailto:[email protected]

mailto:[email protected]



FYE 31 Dec FY14A FY15A FY16E FY17E FY18EKey MetricsP/E (reported) (x) 20.5 20.8 17.2 15.6 14.4Core P/E (x) 17.4 16.8 17.2 15.6 14.4P/BV (x) 3.9 3.9 3.8 3.5 3.2P/NTA (x) 3.8 3.8 3.8 3.4 3.1Net dividend yield (%) 3.6 3.8 3.7 4.0 4.4FCF yield (%) 5.0 4.8 5.3 6.0 6.7EV/EBITDA (x) 12.2 10.7 10.2 9.2 8.5EV/EBIT (x) 13.8 12.2 11.4 10.4 9.6

INCOME STATEMENT (CNY m)Revenue 20,025.9 20,546.6 20,423.2 21,513.1 22,593.1Gross profit 9,233.6 9,781.9 9,980.6 10,579.1 11,155.7EBITDA 5,453.6 5,848.8 6,448.2 6,899.2 7,328.4Depreciation (587.1) (637.0) (665.9) (711.8) (754.4)Amortisation (34.5) (42.9) (51.4) (51.8) (52.1)EBIT 4,832.0 5,168.9 5,730.9 6,135.6 6,521.9Net interest income /(exp) (342.2) (343.0) (406.8) (327.5) (223.3)Associates & JV 0.0 0.0 0.0 0.0 0.0Exceptionals 0.0 0.0 0.0 0.0 0.0Other pretax income 0.0 0.0 0.0 0.0 0.0Pretax profit 4,489.8 4,825.9 5,324.2 5,808.1 6,298.6Income tax (1,150.2) (1,377.7) (1,363.0) (1,486.9) (1,612.4)Minorities (49.0) (44.1) (26.4) (28.9) (31.3)Discontinued operations 0.0 0.0 0.0 0.0 0.0Reported net profit 3,290.6 3,404.1 3,934.7 4,292.4 4,654.8Core net profit 3,290.6 3,404.1 3,934.7 4,292.4 4,654.8Preferred Dividends 0.0 0.0 0.0 0.0 0.0

BALANCE SHEET (CNY m)Cash & Short Term Investments 17,896.4 14,866.1 16,363.6 16,981.0 17,498.4Accounts receivable 2,063.1 2,216.6 2,103.6 2,215.8 2,327.1Inventory 3,104.9 3,296.0 3,471.9 3,764.8 3,953.8Property, Plant & Equip (net) 7,446.9 7,654.2 8,088.3 8,476.5 8,822.1Intangible assets 507.2 599.4 586.0 572.7 559.4Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0Other assets 4,760.2 4,332.1 4,294.1 4,255.7 4,216.8Total assets 35,778.7 32,964.4 34,907.5 36,266.5 37,377.6ST interest bearing debt 12,743.2 14,353.2 13,868.4 13,500.7 12,670.1Accounts payable 1,932.5 2,277.9 1,858.8 1,946.2 2,035.9LT interest bearing debt 4,529.6 0.0 0.0 0.0 0.0Other liabilities 1,394.0 1,241.0 1,241.0 1,241.0 1,241.0Total Liabilities 20,599.6 17,872.6 16,968.6 16,688.5 15,947.5Shareholders Equity 14,821.5 14,710.9 17,582.8 19,254.7 21,149.4Minority Interest 357.5 380.9 356.1 323.3 280.7Total shareholder equity 15,179.0 15,091.8 17,938.9 19,578.1 21,430.1Perpetual securities 0.0 0.0 0.0 0.0 0.0Total liabilities and equity 35,778.7 32,964.4 34,907.5 36,266.5 37,377.6

CASH FLOW (CNY m)Pretax profit 4,489.8 4,825.9 5,324.2 5,808.1 6,298.6Depreciation & amortisation 621.6 679.9 717.3 763.5 806.5Adj net interest (income)/exp (55.5) 16.1 406.8 327.5 223.3Change in working capital 475.8 (488.1) (482.1) (317.7) (210.6)Cash taxes paid (1,356.4) (1,473.4) (1,363.0) (1,486.9) (1,612.4)Other operating cash flow 85.1 99.6 52.7 52.7 52.7Cash flow from operations 4,155.4 3,665.5 4,655.9 5,147.3 5,558.1Capex (1,303.7) (937.5) (1,100.0) (1,100.0) (1,100.0)Free cash flow 2,851.6 2,728.0 3,555.9 4,047.3 4,458.1Dividends paid (1,876.9) (2,155.7) (1,115.5) (2,580.3) (2,807.0)Equity raised / (purchased) (452.1) (392.9) 0.0 0.0 0.0Change in Debt 708.0 (2,831.6) (484.8) (460.6) (437.5)Other invest/financing cash flow 332.9 225.1 (458.1) (389.1) (696.2)Effect of exch rate changes (8.8) (29.6) 0.0 0.0 0.0Net cash flow 299.0 (3,354.9) 1,497.5 617.4 517.4



FYE 31 Dec FY14A FY15A FY16E FY17E FY18EKey RatiosGrowth ratios (%)Revenue growth (5.5) 2.6 (0.6) 5.3 5.0EBITDA growth (5.8) 7.2 10.2 7.0 6.2EBIT growth (5.0) 7.0 10.9 7.1 6.3Pretax growth (10.5) 7.5 10.3 9.1 8.4Reported net profit growth (11.6) 3.4 15.6 9.1 8.4Core net profit growth (11.6) 3.4 15.6 9.1 8.4

Profitability ratios (%)EBITDA margin 27.2 28.5 31.6 32.1 32.4EBIT margin 24.1 25.2 28.1 28.5 28.9Pretax profit margin 22.4 23.5 26.1 27.0 27.9Payout ratio 62.6 63.1 63.0 63.0 63.0

DuPont analysisNet profit margin (%) 16.4 16.6 19.3 20.0 20.6Revenue/Assets (x) 0.6 0.6 0.6 0.6 0.6Assets/Equity (x) 2.4 2.2 2.0 1.9 1.8ROAE (%) 20.5 22.5 23.8 22.9 22.7ROAA (%) 8.7 9.9 11.6 12.1 12.6

Liquidity & EfficiencyCash conversion cycle 95.9 74.1 83.4 92.6 95.0Days receivable outstanding 38.2 37.5 38.1 36.1 36.2Days inventory outstanding 124.9 107.0 116.7 119.1 121.5Days payables outstanding 67.2 70.4 71.3 62.6 62.7Dividend cover (x) 1.6 1.6 1.6 1.6 1.6Current ratio (x) 1.5 1.2 1.4 1.5 1.6

Leverage & Expense AnalysisAsset/Liability (x) 1.7 1.8 2.1 2.2 2.3Net gearing (%) (incl perps) net cash net cash net cash net cash net cashNet gearing (%) (excl. perps) net cash net cash net cash net cash net cashNet interest cover (x) 14.1 15.1 14.1 18.7 29.2Debt/EBITDA (x) 3.2 2.5 2.2 2.0 1.7Capex/revenue (%) 6.5 4.6 5.4 5.1 4.9Net debt/ (net cash) (623.5) (512.9) (2,495.2) (3,480.2) (4,828.2)Source: Company; Maybank



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Yupapan POLPORNPRASERT (66) 2658 6300 ext 1394 [email protected] • Oil & Gas

Tanawat RUENBANTERNG (66) 2658 6300 ext 1395 [email protected] • Banks & Diversified Financials

Vorapoj HONGPINYO (66) 2658 6300 ext 1392 [email protected] • Real Estate & Contractors

Sukit UDOMSIRIKUL Head of Retail Research (66) 2658 6300 ext 5090 [email protected]

Mayuree CHOWVIKRAN (66) 2658 6300 ext 1440 [email protected] • Strategy

Padon VANNARAT (66) 2658 6300 ext 1450 [email protected] • Strategy

Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 [email protected] • Auto • Conmat • Contractor • Steel

Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected] • Media • Commerce

Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 [email protected] • Energy • Petrochem

Termporn TANTIVIVAT (66) 2658 6300 ext 1520 [email protected] • Property

Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 [email protected] • Transportation • Small cap

VIETNAM

LE Hong Lien, ACCA Head of Institutional Research (84) 8 44 555 888 x 8181 [email protected] • Strategy • Consumer • Diversified • Utilities

THAI Quang Trung, CFA, Deputy Manager, Institutional Research (84) 8 44 555 888 x 8180 [email protected] • Real Estate • Construction • Materials

Le Nguyen Nhat Chuyen (84) 8 44 555 888 x 8082 [email protected] • Oil & Gas

NGUYEN Thi Ngan Tuyen, Head of Retail Research (84) 8 44 555 888 x 8081 [email protected] • Food & Beverage • Oil&Gas • Banking

TRINH Thi Ngoc Diep (84) 4 44 555 888 x 8208 [email protected] • Technology • Utilities • Construction

PHAM Nhat Bich (84) 8 44 555 888 x 8083 [email protected] • Consumer • Manufacturing • Fishery

NGUYEN Thi Sony Tra Mi (84) 8 44 555 888 x 8084 [email protected] • Port operation • Pharmaceutical • Food & Beverage

TRUONG Quang Binh (84) 4 44 555 888 x 8087 [email protected] • Rubber plantation • Tyres and Tubes • Oil&Gas



APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.

This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.

MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report to the extent permitted by law.

This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect.

This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report.

Malaysia Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.

Singapore This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.

Thailand Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of Maybank Kim Eng Securities (Thailand) Public Company Limited. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) accepts no liability whatsoever for the actions of third parties in this respect.

Due to different characteristics, objectives and strategies of institutional and retail investors, the research reports of MBKET Institutional and Retail Research Department may differ in either recommendation or target price, or both. MBKET Retail Research is intended for retail investors (http://kelive.maybank-ke.co.th) while Maybank Kim Eng Institutional Research is intended only for institutional investors based outside Thailand only.

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. MBKET does not confirm nor certify the accuracy of such survey result.

The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the policy and sustainable development plan for the listed companies of the Office of the Securities and Exchange Commission. Thaipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti-corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed company. The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment of operation and is not based on any inside information. Since this assessment is only the assessment result as of the date appearing in the assessment result, it may be changed after that date or when there is any change to the relevant information. Nevertheless, MBKET does not confirm, verify, or certify the accuracy and completeness of the assessment result.

US This third-party research report is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security mentioned within must do so with: Maybank Kim Eng Securities USA Inc. 777 Third Avenue 21st Floor New York, New York 1- (212) 688-8886 and not with, the issuer of this report.

http://kelive.maybank-ke.co.th/

http://kelive.maybank-ke.co.th/



Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 29 November 2016, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

As of 29 November 2016, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Conduct Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

DISCLOSURES Legal Entities Disclosures Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938- H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This report is distributed in Singapore by Maybank KERPL (Co. Reg No 198700034E) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Maybank Kim Eng Securities (“PTMKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the Financial Services Authority (Indonesia). Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities Limited (License Number: 117/GP-UBCK) is licensed under the State Securities Commission of Vietnam. Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited and the Bombay Stock Exchange and is regulated by Securities and Exchange Board of India (“SEBI”) (Reg. No. INZ000010538). KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) and as Research Analyst (Reg No: INH000000057) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.



Historical recommendations and target price: Hengan International (1044 HK)

Definition of Ratings

Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (excluding dividends) HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends) SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

50.0

60.0

70.0

80.0

90.0

100.0

May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16


29 May Buy : HK$102.6

30 Jun Sell : HK$76.7

26 Aug Sell : HK$62.6

5 Jan Sell : HK$60.3

16 May Sell : HK$58.8

31 Aug Hold : HK$70.6

26 Oct Buy : HK$70.6



Malaysia Maybank Investment Bank Berhad (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194

Singapore Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd 50 North Canal Road Singapore 059304 Tel: (65) 6336 9090

London Maybank Kim Eng Securities (London) Ltd PNB House 77 Queen Victoria Street London EC4V 4AY, UK Tel: (44) 20 7332 0221 Fax: (44) 20 7332 0302

New York Maybank Kim Eng Securities USA Inc 777 Third Avenue, 21st Floor New York, NY 10017, U.S.A. Tel: (212) 688 8886 Fax: (212) 688 3500

Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888 Fax: (603) 2282 5136

Hong Kong Kim Eng Securities (HK) Ltd Level 30, Three Pacific Place, 1 Queen’s Road East, Hong Kong Tel: (852) 2268 0800 Fax: (852) 2877 0104

Indonesia PT Maybank Kim Eng Securities Sentral Senayan III, 22nd Floor Jl. Asia Afrika No. 8 Gelora Bung Karno, Senayan Jakarta 10270, Indonesia Tel: (62) 21 2557 1188 Fax: (62) 21 2557 1189

India Kim Eng Securities India Pvt Ltd 2nd Floor, The International, 16, Maharishi Karve Road, Churchgate Station, Mumbai City - 400 020, India Tel: (91) 22 6623 2600 Fax: (91) 22 6623 2604

Philippines Maybank ATR Kim Eng Securities Inc. 17/F, Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1200 Tel: (63) 2 849 8888 Fax: (63) 2 848 5738

Thailand Maybank Kim Eng Securities (Thailand) Public Company Limited 999/9 The Offices at Central World, 20th - 21st Floor, Rama 1 Road Pathumwan, Bangkok 10330, Thailand Tel: (66) 2 658 6817 (sales) Tel: (66) 2 658 6801 (research)

Vietnam Maybank Kim Eng Securities Limited 4A-15+16 Floor Vincom Center Dong Khoi, 72 Le Thanh Ton St. District 1 Ho Chi Minh City, Vietnam Tel : (84) 844 555 888 Fax : (84) 8 38 271 030

Saudi Arabia In association with Anfaal Capital Villa 47, Tujjar Jeddah Prince Mohammed bin Abdulaziz Street P.O. Box 126575 Jeddah 21352 Tel: (966) 2 6068686 Fax: (966) 26068787

South Asia Sales Trading Kevin Foy Regional Head Sales Trading [email protected] Tel: (65) 6636-3620 US Toll Free: 1-866-406-7447

North Asia Sales Trading Andrew Lee [email protected] Tel: (852) 2268 0283 US Toll Free: 1 877 837 7635

Malaysia

Joann Lim [email protected] Tel: (603) 2717 5166

Thailand Tanasak Krishnasreni [email protected] Tel: (66)2 658 6820

Indonesia

Harianto Liong [email protected] Tel: (62) 21 2557 1177

London Scott Kinnear-Nock [email protected] Tel: (44) 207-332-0221

New York

Andrew Dacey [email protected] Tel: (212) 688 2956

India Manish Modi [email protected] Tel: (91)-22-6623-2601

Vietnam

Patrick Mitchell [email protected] Tel: (84)-8-44-555-888 x8080

Philippines Keith Roy [email protected] Tel: (63) 2 848-5288

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