Unicharm Says Margins to Widen as China Sales to Double by 2014

Unicharm Corp. (8113), Japan’s biggest diaper maker, forecasts operating margins will widen as it doubles sales in China to more than 100 billion yen ($1.3 billion) by March 2014.

Total operating margins might widen to as much as 18 percent on the back of growth in Asia and the company is considering spending more than 10 billion yen on a fifth factory in China, the world’s most populous nation, President Takahisa Takahara said in an interview in Tokyo on Feb. 6.

Takahara said he is counting on rising incomes in Southeast Asia and China to win more customers for its products and is considering adding factories to tap demand. Unicharm, which competes with Kao Corp. (4452) and Procter & Gamble Co. (PG) in Japan, is expanding overseas as the market for baby diapers is shrinking at home because of an aging population.

“This company is bullish on China and their claims are substantiated,” said Mikihiko Yamato, an analyst with JI Asia in Tokyo, who recommends buying shares of Unicharm. The company may gain market share from Chinese competitors with its higher- quality products, he said.

Unicharm’s Chinese diaper market may overtake the 200 billion yen Japanese market as early as 2016, Takahara said. Unicharm’s margins in China are at 18 percent, he said.

Photographer: Akio Kon/ Bloomberg

Takahisa Takahara, president and chief executive officer of Unicharm Corp. Close

Takahisa Takahara, president and chief executive officer of Unicharm Corp.

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Photographer: Akio Kon/ Bloomberg

Takahisa Takahara, president and chief executive officer of Unicharm Corp.

The company had sales of 44.7 billion yen in China for the year to March. Shares of Unicharm have gained 29 percent in Tokyo in the past year.

“There will be more users when income levels rise,” said Takahara. “As our production bases increase, the distribution costs will come down.”

Margins

The company had an operating margin of 12.4 percent in the year ended March 31, 2011, according to data compiled by Bloomberg. Widening that to 18 percent would bring it closer to Procter & Gamble Co.’s 19.2 percent, according to data compiled by Bloomberg. P&G is the world’s largest consumer-products company.

P&G, which sells Pampers, has 44.8 percent of market share for diapers in China and Hong Kong-listed Hengan International Group Co. has 12.9 percent in 2010, according to Euromonitor International. Unicharm has 8.3 percent in 2010, according to Euromonitor data.

The company had sales of 376.9 billion yen and operating income of 46.6 billion yen in the year ended March 31, according to its annual report. Overseas sales accounted for 42 percent of sales and operating income from operations abroad topped 20 billion yen for the first time in the last fiscal year.

“When we think of profits, the highest region is in Asia,” said Takahara.

To contact the reporter on this story: Cheng Herng Shinn in Tokyo at Hcheng52@bloomberg.net; Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net;

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