not vested
Likely stronger-than-expected 2H16 operating profits and accelerated sales in 2017
We expect 2H16 operating profit to increase by 3%, better than our previous expectation of -5% as the YoY GPM improvement is
enough to offset higher SG&A expenses on marketing spending. We expect sales to increase by 4% in 2H16, in line with 1H16.
We expect sales to accelerate to high single digit in 2017E (2016E +4%) on:
(1) e-commerce acceleration,
(2) sales team restructuring,
(3) launch of a high-end sanitary napkin product and
(4) stabilising diaper sales on strong birth rate in 2016/17E.
We believe the potential petorchem increase can be largely offset by
(1) SG&A cost savings after the launch of the new SAP system,
(2) reduction in promotion expenses and
(3) product mix upgrade and the launch of a high-end sanitary napkin product.
We raise our 2016E/17E earnings by 2%/6% to reflect better 2H16E operating profit and SG&A cost savings in 2017, and raise TP to
HK$77.
Hengan trades at 17x 2017E P/E, a historical low and a 10% discount to the staples sector.
We see sales acceleration in 2017 to be key share price catalysts. The 1.3% stake hike by management in the past 3 months may suggest higher confidence in 2017.
Source: CS