【Blue Chip Stock 1044 Earnings】Essity International: Middle East Conflict Did Not Impact Costs, Full-Year Profit Up 10%, Maintains Final Dividend of RMB 0.7 per Share

Hengan International (01044)
Announces annual results. Last year, Hengan’s profit attributable to shareholders was RMB 2.54 billion, an increase of 10.3% year-on-year. Earnings per share were RMB 2.227, with a final dividend of RMB 0.7 per share maintained. Hengan’s stock price rose 2.1% for the day, closing at HKD 28.18, with a trading volume of HKD 120 million.

When asked about the impact of the Middle East conflict, Hengan CEO Xu Qingliu said that currently, costs have not been affected, as the group has secure inventory and responded quickly in the supply chain, such as increasing procurement of chemical materials in advance. However, the current situation in the Middle East has caused raw material prices to be much higher than one or two months ago. Both the group and suppliers find it difficult to predict future developments, so suppliers are hesitant to accept orders far in advance.

Regarding pulp prices, Xu Qingliu stated that over the past two to three months, pulp prices have steadily increased by about USD 5 per month, roughly a 2% rise, but the overall trend is expected to remain stable. Although some large pulp producers have temporarily halted operations for maintenance or to regulate supply and support prices, current pulp inventories are high, and increased supply from mainland China is expected to prevent pulp prices from returning to the high levels seen two to three years ago.

Xu Qingliu mentioned that if the conflict in the Middle East continues, various industries will inevitably be affected, but it is difficult to predict specific impacts at this stage. However, barring black swan events, the group expects stable operations throughout the year.

Domestic Price Competition Remains Intense; Product Mix Improvement Helps Increase Average Price

Hengan CFO Li Weiliang also said that it is currently difficult to forecast profit, and the group will continue to focus on product quality, aiming to increase the proportion of high-end products. The increase in average selling price last year was not due to price hikes but rather product mix improvements, such as wet wipes accounting for about 9% of tissue sales in 2024, rising to approximately 11%. The group plans to continue this approach to raise prices in the future.

Xu Qingliu added that given the current social environment and competitive landscape, it is difficult to simply raise product prices. Gross margin improvements are achieved through launching higher value-added new products and increasing brand marketing to stimulate consumption. He believes that price competition in mainland China has “neither intensified nor eased.” Despite negative CPI figures last year, which put pressure on prices across industries, he remains confident in China’s market prospects due to its large population and market potential. Although the group is a leading industry player, there is still room to increase market share in various fields. Competition is unavoidable, and the group aims to build a mid-to-high-end brand image.

Regarding Hong Kong, management indicated that price competition there is relatively better. Although e-commerce has developed rapidly in recent years, the group continues to develop new products, such as a significant boost in tissue distribution through a collaboration with Sanrio. Overall prices have not changed much for now.

Last year, Hengan International’s revenue was RMB 23.07 billion, up 1.8% year-on-year. The main business revenue, including tissue and hygiene products, was RMB 20.74 billion, up 1.9%. Growth in tissue sales effectively offset declines in hygiene product sales and increased promotional expenses. Gross profit was RMB 7.81 billion, up 6.6%. In the second half, with reduced tissue promotions and a recovery in hygiene product sales, gross profit margin was 33.8%, up 1.5 percentage points, and operating profit was RMB 3.48 billion, up 3.9%.

Tissue Business Sales Resume Growth

Tissue sales revenue recovered, increasing approximately 5.6% year-on-year to about RMB 14.17 billion. Under the strategies of “value competition,” product diversification, and omni-channel sales, market share steadily increased. Tissue sales accounted for about 61.4% of the group’s total revenue, up from 59.2%. It is expected that industry consolidation and rising pulp prices this year will help reduce price competition. The demand for high-end quality tissues will continue to grow, and the group will keep increasing the penetration of high-end products and optimizing channel distribution. The tissue business is expected to maintain steady growth.

Hygiene products sales declined 5.3% to RMB 6.57 billion, accounting for about 28.5% of total revenue. The market is expected to remain highly competitive this year. As high-margin, high-end products continue to increase in proportion and omni-channel sales benefits persist, the group’s hygiene products revenue is expected to stay stable.

Group Gross Profit Expected to Remain Stable

Hengan stated that the operating environment in 2026 will still be challenging, but the steady growth in tissue sales will continue to strengthen profitability resilience. The group will optimize omni-channel sales, upgrade products, and moderately increase promotional expenses to maintain stable revenue. Precise allocation of sales expenses and growth in high-end, high-margin products will help mitigate the impact of raw material price fluctuations on gross profit. The group’s gross profit is expected to remain stable.

Source: Hengan International Announcement