Daiwa released a research report stating that it reaffirmed Hengan International's (01044) “superior to the market” rating and raised the 2024-25 profit forecast by 5%-7% to reflect a higher operating margin. The target price was raised from HK$29 to HK$30. The company's recurring profit in the second half of the year after adjustment for exchange factors reached RMB 1.6 billion, up 32% year on year, far exceeding expectations.
Yamato pointed out that Hengan International's profit for the second half of the year was mainly due to the Group's profitability benefiting from lower raw material prices and savings in operating expenses. Management's goal this year is to maintain market share and further improve profit margins. Considering that the dividend rate reached 6% and the results for the first half of this year may be surprising, the rating was reiterated. Hengan's gross margin rose from 31% in the first half of 2023 to 36.5% in the second half of 2021, a record high since the second half of 2021. Management expects that under a low base, the Group's gross margin will continue to improve this year. Based on a price-earnings ratio of 8.6 times and a dividend rate of 6%, it is believed that Hengan has strong defensive strength during the downward cycle of raw materials.