Vinda International (3331.HK)
Waiting for Orphan Investment
Vinda International is a leading manufacturer of tissue paper products in China. Principal products include toilet paper, paper handkerchiefs, facial tissue paper and napkins. The flag ship brand “Vinda” is well-recognized as a premium b rand of tissue paper in China. These days, Vinda sells its products on a nationwide basis to distributors and direct customers, which include certain international supermarket chains, fast-food chains and hotel chains. Priced at HK$11.30, Vinda is trading at our FY14E core leading PE of 26.2x. Based upon our Discounted 3-Stage FCFE H Model with CAPM 8.2%, gs 3.5%, gl 2.5% and H factor of 4, we would like to slightly revise down our target price from HK$14.77 to HK$14.72 and maintain Buy rating for this counter. The target price will result in FY14E core leading P/E of 34.1x. Vinda has already appointed HSBC as an advisor for strategic view for SCA cooperation. Recent corporate actions imply orphan investment will be another investment thesis of Vinda. On 31 Jan 2015, Vinda will release its final results. As such, we expect more details about the long term strategy of Vinda. That means, Vinda may find a turning point for its valuation. Meanwhile, the market still pays heed on oversupply, price competition and high debt level. Key risks: raw material costs volatility, intensifying competition within the industry, and interest rate risks.