Hengan International Group

Hengan aims to boost capacity

PUBLISHED : Wednesday, 22 March, 2006, 12:00am
UPDATED : Wednesday, 22 March, 2006, 12:00am

Personal hygiene products company Hengan International Group aims to reduce outsourcing and achieve higher margins by raising its production capacity after recording a 51 per cent jump in net profit to $450.2 million for last year.

Deputy chairman and chief executive Hui Lin-chit said the company would spend $650 million this year, mainly on buying two new tissue paper production machines and eight new disposable diaper machines.

With the new equipment, annual tissue paper production would double to 240,000 tonnes and diaper production would increase 60 per cent, he said.

The company needed to outsource the production of 20,000 tonnes of tissue paper last year, but with its Fujian factory due to come on line in July it will be able to cut those contracts.

Hengan has about $500 million cash on hand and a gearing ratio of 19.6 per cent, according to chief financial officer Loo Hong-shing.

Mr Hui said there was a need to seek external financing for expansion of production capacity, but ruled out issues of new shares or share placements in the next year.

Among its products, sanitary napkins recorded the highest gain in gross margin last year to 52.5 per cent from 46.4 per cent in 2004.

The company attributed the decline in gross margin for tissue paper to 38.6 per cent last year to its production outsourcing which increased costs. The margin in the previous year was 39.9 per cent.

The gross margin for disposable diapers rose slightly to 31.2 per cent last year from 30.9 per cent in 2004.

Turnover rose 32.1 per cent to $3.03 billion last year. Overall gross margin reached 41.6 per cent, up from 40.3 per cent in 2004.

The company recommended a final dividend of 16 cents per share for last year, compared with 12 cents in 2004.

The stock climbed 2.74 per cent to $11.25 yesterday.