Why is Vinda, which is losing money, being targeted by the "paper king"?

Value Planet

2024-04-25 18:55Posted in Beijing Finance and Economics Creators

Author | Tang Fei

Edit | weber

26.1 billion, a cross-border acquisition case has settled.

On the evening of March 11, Vinda International announced that Asia-Pacific Resources Group acquired 72.62% of Vinda International's shares held by Essity and Li Chaowang at a price of HK$23.5 per share, totaling HK$26.1 billion.

According to the data, APRIL is one of the world's most technologically advanced and efficient pulp and paper products producers, backed by the famous overseas Chinese businessman Tanoto Chen and his Singapore Golden Eagle Group, which has a lot of layout in pulp and paper, cellulose fiber and specialty cellulose, and is a world-renowned upstream enterprise.

The price of HK$26.1 billion has also become one of the largest equity transactions in China's paper industry.

The addition of Vinda under his command means that Singapore paper tycoon Tanoto has taken a new "multinational paper kingdom", and is expected to use Vinda and its brands to expand into the Chinese market. For Vinda, with the assistance of international capital, the former "domestic paper king" may have more possibilities to explore overseas markets.

Performance declined, Vinda had no choice but to "sell herself"

According to public information, Vinda Group was founded in 1985 and listed on the main board of the Hong Kong Stock Exchange in 2007. After 39 years of development, Vinda International has become one of the largest hygiene products companies in Asia, and has expanded its sales network to Malaysia, South Korea, Singapore, Thailand and other places.

Up to now, Vinda International has established 13 modern production bases, 1 Southeast Asian headquarters, and developed 9 major brands, covering four categories, including tissue paper, feminine care, adult incontinence care, baby care, and commercial cleaning and hygiene solutions, serving a total of 2 billion consumers in the Asia-Pacific region.

According to the 2023 financial report, Vinda Group's annual revenue is HK $19.999 billion. The sales volume of high-end paper products represented by Vinda Cotton, Depot and Duokang series achieved double-digit growth. In addition to its high reputation in China, Vinda's baby care brand Drypers has been selling well in Malaysia for many years, ranking first in the market.

However, due to various factors such as rising raw materials and intensified competition, Vinda International's performance has suffered a certain decline in the past three years, which has led to the end of "selling out".

According to the financial report, although Vinda International's revenue has been growing in recent years, the growth rate has dropped from 13.11% in 2021 to 2.99% in 2023, and the net profit attributable to the parent company has decreased from HK$1.874 billion in 2020 to HK$253 million in 2023, with net profit growth rates of 64.66%, -12.59%, -56.91% and -64.16% respectively from 2020 to 2023.

Source: Futubull APP

As for the decline in performance, Vinda International explained that the group's gross profit and net profit continued to be negatively affected by inflationary pressures and intensified market competition compared with 2022. Although raw material prices have fallen significantly, it has had a negative impact on profit margins due to the time it takes to digest the raw material inventory purchased in the early stage.

In fact, the entire tissue industry is mired in rising raw material prices. According to public information, the price of pulp has continued to rise since November 2020, and the pulp price in November 2020 was about 4,583 yuan/ton, hovering at 5,500-6,000 yuan/ton at the end of 2021, and the spot price has risen to 7,400-7,800 yuan/ton at the end of 2022. Entering 2023, although the price of pulp has fallen sharply, it has rebounded to the median level at the end of the year, and the average price in the last natural month has fluctuated around 6,000 yuan/ton. Since March this year, affected by the strike in Finland, global wood pulp prices have continued to rise, and the paper industry has ushered in a new round of cost increases.

According to the "2023 China Household Paper Industry Market Research Report" released by Huajing Industry Research Institute, pulp is the main raw material in the production process of household paper, accounting for about 50%-70% of the production cost of household paper. Therefore, the slight fluctuation of upstream pulp prices will affect the revenue and profits of downstream enterprises.

Limited performance growth, coupled with the low concentration of the domestic paper industry, as well as the continuous upward pressure on the cost of raw materials in the future, have put pressure on the operation of several leading household paper companies. Under such a premise, it is not a good choice for buyers with rich industrial resources who are willing to buy at a high price.

With the blessing of giants, Vinda is expected to reverse the decline

APRI, which bid HK$26.1 billion, also has a big deal.

According to public information, APRH has built one of the world's largest pulp and paper mills in Indonesia, and Tanoto himself is also known as Indonesia's "paper king". In addition, RGE operates in a variety of sectors, including pulp and paper, palm oil, cellulose and energy development.

Indonesia is one of the countries with the most developed forest resources in the world. According to the data, as of 2020, Indonesia ranks third in the world with about 68% forest coverage, and has abundant wood and pulp resources.

China is one of the world's largest tissue consumer markets, and the "2024-2030 China Household Tissue Industry Development Trend Analysis and Future Investment Prospect Report" pointed out that the market size of China's tissue industry reached 175 billion yuan in 2021. According to the data of the Household Paper Professional Committee of the China Paper Association, from 2012 to 2021, the per capita consumption of household paper in Chinese increased from 4.3kg to 8.2kg, but there is still some room for improvement compared with the data of developed countries such as the United States (29kg) and Japan (17kg).

Therefore, the cooperation between Golden Eagle and Vinda can be said to be "each taking what he needs".

Although the domestic tissue market has huge potential, the industry concentration is low. According to data from Zhiyan Consulting, as of 2022, the total market share of industry CR5 (Golden Red Leaf, Hengan International, Vinda International, Taisheng Technology and Lee & Man Paper) is only 36%.

As a comparison, in 2022, the market share of the top three household paper in the United States, Kimberly-Clark, and Georgia Pacific will be 32.9%, 18%, and 15.8%, respectively, accounting for a total of 66.7% of the market share. During the same period, the top three companies in the Japanese tissue paper market (Dawang Paper, Kimberly-Clark, and Oji Paper) also accounted for 59.6% of the market share. Referring to the development law of these developed markets, it is not excluded that the domestic tissue paper industry will still be integrated in the future.

Zhiyan Consulting pointed out in the research report that due to the overcapacity of the industry at this stage and the fierce market competition, it is difficult to increase the sales price of products, the profit margins of production enterprises have been seriously squeezed, and the loss situation is also relatively common, and the industry has entered the stage of accelerated reshuffle. Large enterprises with brand awareness will also continue to maintain a leading competitive advantage, and small and medium-sized enterprises with poor anti-risk ability will be eliminated at an accelerated pace.

With the support of APRI and RGE, Vinda International will be able to control costs, enhance the upstream and downstream voice of the industrial chain, and maintain its dominant position in the new round of competition.

High-end and going overseas have become the trend

In the 2023 financial report, Vinda International mentioned "premiumization" 24 times, and pointed out in its 2024 vision that "Vinda will continue to forge ahead, actively identify marketization and closely follow consumer needs, and focus on high-end strategies and innovative ideas." ”

Indeed, high-end is a significant development trend of the entire tissue industry.

Generally speaking, per capita household paper consumption is highly positively correlated with the GDP level, in the period of economic underdevelopment, residents have insufficient consumption capacity, and more are only willing to buy the most basic living paper (toilet paper) at a lower price, and when the per capita disposable income rises, people's demands for a healthy and high-quality life increase, and they are willing and able to afford higher-end household paper consumption (such as facial tissues, handkerchiefs, etc.), and can use specific household paper categories for specific scenarios (such as paper towels, kitchen paper, etc.).

With the sustained economic growth of the mainland, the people's living standards are improving day by day, and the trend of consumption upgrading is obvious. People's needs are diversified, and the overall consumption habits of household paper are guided in a more subdivided and high-end direction.

The "2024 China Quality Household Paper Consumption Trend Insight White Paper" points out that after the upgrade of consumer demand, function, composition, and experience are indispensable. From the perspective of the population, 25-34 years old high-tier urban people who pursue a high-quality life, especially those with sensitive skin and mothers, are more willing to pay for good paper towels. In particular, the higher the functional demand and the more direct contact with the skin, the stronger the willingness of consumers to pay a premium for it.

Source: "2024 China Quality Household Paper Consumption Trend Insight White Paper"

On the other hand, it has gradually become a trend for domestic brand paper to go overseas.

According to customs statistics, China's household paper products will continue to show a trade surplus trend in 2023, and the export volume will show a significant increase. The total export volume of household paper was about 1.1131 million tons, a year-on-year increase of 41.67%, and the export value was 2.373 billion US dollars, a year-on-year increase of 16.71%. If calculated in terms of export volume, the export of household paper is still dominated by finished products (toilet paper, handkerchiefs, facial tissues, napkins, etc.), accounting for 71.0%.

Driven by both policies and markets, the enthusiasm of domestic paper enterprises for overseas layout has also increased significantly. According to the statistics of Zhuochuang Information, up to now, leading paper companies such as Jinhongye, Hengan International, Vinda International, and Chenming Paper have actively launched overseas business.

Taking Vinda International as an example, on December 16, 2022, the first phase of Vinda International's new headquarters in Southeast Asia was officially put into operation. According to the disclosed information, Vinda International's new headquarters in Southeast Asia is equipped with leading production facilities, covering automated and intelligent production, and fully covering five functional sectors: R&D, production, warehousing, distribution and management. As a result, Vinda has expanded its business to a number of Asian markets including Singapore, Indonesia, Thailand, Cambodia, Vietnam and the Philippines. Chenming Paper has established a number of branches in the United States, Germany, Russia, Vietnam, India and other countries, and its products are sold to dozens of countries and regions in Asia, Europe, America, the Middle East, Africa and so on.

Cao Zhenlei, a consultant to the Paper Chamber of Commerce and chairman of the China Paper Society, mentioned that in fact, the export price of China's household paper is much higher than the domestic market price. Therefore, it is recommended that more enterprises actively explore overseas markets and seek new growth points. Russia's invasion of Ukraine has led to soaring energy prices in Europe, and tissue paper has become a straining commodity. China has sufficient production capacity for high-quality tissue paper, which can meet the market demand in Europe and other regions.

As a leader in the domestic paper industry, Vinda International has made certain achievements in the above two aspects. For example, its high-end feminine care brand Libresse, high-end tissue brand Tempo Depot, and high-end adult incontinence care brand TENA have a good market share in the industry. The above-mentioned "overseas factory construction" action shows Vinda's ambition for the international market.

On the other hand, the price of pulp in the pulp market is still unpredictable and unpredictable. For household paper, a rigid product, consumers remain highly sensitive to price changes. Therefore, in the face of rising cost pressure, it is difficult for large paper companies to resolve the dilemma only by continuing to raise prices. Although Vinda International ushered in the "white knight" to save the scene, it is still difficult to make a clear judgment on the extent to which it can effectively alleviate Vinda's cost pressure.

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