On July 20th, VINDA INT'L (03331.HK) released its 2023 interim report. During the reporting period, it achieved a revenue of HKD 10.07 billion, representing a YoY growth of 10.1% or 4% in HKD terms. Net profit recorded was HKD 121 million, a significant decrease of 81.1% YoY, with a net profit margin decrease of 5.4 percentage points to 1.2%.
On the day of the financial report release, VINDA INT'L opened low and continued to decline, reaching a year-low of HKD 17.76 per share during trading and closing at HKD 18 per share, a decrease of 1.32%.
VINDA INT'L attributed the pressure on profits to cost inflation and mentioned that although wood pulp prices have gradually decreased since the end of 2022, the costs in the first half of this year were still affected by high-priced inventory, putting pressure on gross profit margin. The gross profit margin decreased by 6.9 percentage points to 25.1% during the reporting period.
Similarly, Hengan International (002511.SZ) also presented a similar situation in its interim report.
In the first half of 2023, Hengan International expects a YoY decrease in net profit of 55% to 65%, also due to the impact of high-priced pulp inventory and rising energy prices.
Since the beginning of this year, the main price of pulp futures has fallen from over CNY 6,000 per ton to around CNY 5,200 per ton.
In terms of distribution channels, VINDA INT'L's revenue from traditional distributors, modern channel supermarkets, commercial, and e-commerce accounted for 24%, 21%, 9%, and 46% of the total revenue, respectively. Among them, the revenue from the e-commerce channel showed the most significant growth, recording a natural growth of 23.6%. According to Shen Hong Securities research report, VINDA INT'L has maintained the leading market share on major e-commerce platforms since 2015, while also covering overseas channels with personal care products.
In terms of product differentiation, the tissue business, which accounts for more than 80% of total revenue, is VINDA INT'L's core business. It contributed HKD 8.361 billion in revenue during the reporting period, a YoY growth of 5%, but the gross profit margin dropped significantly from 31.6% to 23.8%.
VINDA INT'L mentioned that the sales volume of its high-end paper products in mainland China achieved double-digit growth and the proportion continued to increase.
The personal care business, which has a higher gross profit margin, was less affected by costs. It recorded HKD 1.708 billion in revenue during the reporting period, a YoY decrease of 0.5%, accounting for 17% of total revenue. Compared to the tissue business, the gross profit margin only decreased by 2.9 percentage points to 31.2%.
This is because sanitary napkins, a type of personal care product, have high gross profit margins and low consumer price sensitivity.
According to Southwest Securities research report, the proportion of middle to high-end sanitary napkin products in the industry continues to increase in response to the trend of consumer upgrading. The market share of industry leader Hengan International's Seven Degrees Space has reached 16.1%, making it the industry's number one, with the unit price of new sanitary napkin products exceeding CNY 1 per piece.
In terms of performance outlook, VINDA INT'L stated that it will invest in high-end and high-profit categories, continue to invest in the personal care business, as well as e-commerce and new channels.

When will the dilemma be reversed?

Pulp costs remain high, VINDA INT'L's net profit in the first half of the year sharply decreased by over 80%.