Net profit was in line with our estimate
Huabao reported FY13 results on 18 June. Net profit declined slightly, down 1.9% yoy, to HK$1.7bn in FY13, on th e back of 10.1% yoy sales growth to HK$3.6bn. Net profit was 1% below our forecast, while sales revenue was 5% below our estimate, mainly due to lower-than-expected fragrance and RTL sales. The company declared a final dividend of HK9.4 cents per share and a special dividend of HK2.8 cents per share, representing a total dividend payout ratio of 41% (39% in FY12).
Margin erosion on mix shift and rising opex
GPM was down 1.4ppt to 69.1% (68.1% in 1H13, 69.9% in 2H13) in FY13 due to a mix shift towards the lower-margin RTL business. EBITM declined 6.8ppt to 55.5% (53.3% in 1H13, 57.4% in 2H 13) on a lower GP margin, rising opex and a decrease in other income. SG&A as a % of sales increased 2.4 ppts yoy to 18.4%, due to higher staff cost (+2.0 ppts) and R&D cost (+0.3 ppts). ETR rose a slight 0.3 ppts yoy to 15.4%. Net margin declined 5.8 ppts yoy to 47.1%. By segment, flavor business (82.2% of total sales in FY13) posted only a 4.1% increase in sales, affected by the slowdown in China’s tobacco industry and food & beverage industry and the fierce competition in the food additive industry. EBITM was down 5.8ppt to 63% on lower other income and higher staff cost. The fragrance business (4.5%) declined 7.0% yoy mainly due to fierce competition, streamlining of Xiam en Amber, and restructuring of Yunnan Huaxiangyuan. GPM of Xiamen Amber improved, thanks to optimization of the raw material procurement system and control of raw material cost. EBITM recovered to 5.5% from 4.5% a year ago. The RTL business (13.3%) surged 91% to HK$483m, attributed to the increa se in ASP and the completion of the second phase of the Guangdong Jinye production line in November 2012. However, this is below mgt’s target of HK$600m, due to the ramp-up of the Jinye second phase. EBITM declined 2.1 ppts to 31.6% due to increased R&D expenses and staff cost, and higher depreciation expense.
Share buyback
The company repurchased 54.3m shares in FY13 at a consideration of HK$198.8m. Management believes the share repurchase is in the best interest of the company and shareholders. Net cash reached HK$1.86bn, up 37% compared to FY12
The company will hold an analyst briefing at 9:30 am on 19 June. We will have more updates after the meeting