China Diaper Maker Hengan Adds Capacity on Rule Change
Chinese diaper maker Hengan International Group Co. (1044) will increase its production capacity and introduce premium goods this year as the government eases a more than three-decade-old one-child rule.
The company will raise diaper-making capacity by 20 percent and start selling Q-Mo, a more expensive range of the products, in the second half of this year, Hui Lin Chit, deputy chairman and chief executive officer, said in an interview in the southern Chinese province of Fujian where Hengan is based.
Last year China approved to relax the policy, put in place after Mao’s death in 1976, limiting most families to a single child as part of reforms to address an aging population. The step may boost China’s child-related consumption by 22 percent annually over the next five years, Goldman Sachs Group Inc. estimated, benefiting companies from Hengan to China’s biggest infant formula maker Mead Johnson Nutrition Co. (MJN) and Japan’s baby product company Unicharm Corp. (8113)
“Diapers are only in its take-up phase in China, and with China easing up population controls, the growth will be very fast,” Hui said on Jan. 15. “We want to roll out better and more products to tap this.”
Diapers accounted for 14 percent of revenue in the six months ended June, while tissue paper products contributed 49 percent, according to data compiled by Bloomberg. Hengan targets to raise the contribution of diapers to total sales, Hui said, without elaborating.
China’s easing of its population controls helped shares of the Hong Kong-listed company climb 31 percent last year, the fifth-best performer on the Hang Seng Index. The benchmark index rose 3 percent.
Implemented more than three decades back to alleviate poverty, the one-child policy restriction saddled the nation with a declining labor force and an aging population. On Nov. 15, the Communist Party said it would relax the earlier rule where most couples were allowed to have a second child if both parents are only children.
Beijing will let couples have a second child if either spouse is an only child as soon as March, Xinhua News Agency reported yesterday, citing the city’s Municipal Commission of Population and Family Planning.
Hengan was the fourth largest in China’s 35 billion yuan ($5.8 billion) diaper market last year with a 9.3 percent share. Cincinnati, Ohio-based Procter & Gamble Co. (PG) is top ranked with 41 percent, according to industry researcher Euromonitor International.
The market share of Hengan has declined amid expansion in China by competitors including Tokyo-based Unicharm and Dallas, Texas-based Kimberly-Clark Corp.
The company plans to expand its product research and development team and strengthen its presence in stores that specializes in selling baby and maternity products in China, Hui said.
Hengan, which also makes sanitary napkins and snack foods, is considering acquisitions to boost its food business, he said. It’s also looking to start joint ventures in South Africa and Philippines to distribute its products, the executive said. Hengan’s sales in 2014 will expand at a faster pace than last year, according to Hui. The company’s sales grew 15 percent to HK$10.4 billion in the six months ended June.
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