"if you don't accumulate steps, you can't reach thousands of miles; if you don't accumulate small streams, you can't become rivers and seas." This sentence, which we are already familiar with, tells us not to ignore small things. Success is often achieved by doing countless small things well.

Such as paper, which seems inconspicuous in people's lives, has contributed to Hengan Internationgal Group's (01044) stock market capitalization of nearly 100 billion yuan.

Source: Futu Securities

I believe many people will be puzzled that the amount of paper used by everyone is relatively fixed, and we will not use more paper tomorrow than this year. What's more, the weight of daily paper is so light that how much paper can each person use in a year? Why is a company that produces paper products so "bullish"?

Believe it or not, this is the case. From the perspective of reinstatement, Heng an's share price was already negative 10 years ago.

Not only that, Vida International (03331), which listed nine years later than Hengan, can still "copy" Hengan's share price perfectly, rising 40-fold in the past nine years, and the share price of the two companies can be called the best performance of paper stocks.

Source: Futu Securities

So why did this happen? What about the "success" of these two companies at the current time? Take a question to find the answer, first of all, let's take a look at the industry situation of household paper in our country.

The consumption of household paper is huge.

In fact, the consumption of household paper in China is very large. according to relevant data, the output of household paper in China reached 8.85 million tons in 2015, ranking first in the world and nearly 2 million tons more than the United States, which ranked second.

In terms of consumption, the per capita consumption of household paper in China has maintained a steady growth trend in the past 10 years. In 2015, the per capita consumption of household paper was about 6 kg, and the total consumption of household paper was close to 8 million tons.

According to the data from the China demographic Yearbook, the total population of China in 2016 has reached 1.383 billion. Based on the per capita consumption of 6 kg of household paper, China's household paper consumption should be about 8.3 million tons in 2016.

It can be seen that the big market of household paper is accumulated bit by bit by everyone. So, what is the growth potential of household paper in the future?

Two-dimensional interpretation of the growth potential of household paper

First of all, China is a country with a large population base, and a small increase in consumption per person will lead to a change in the total consumption of ten thousand tons. During the nine years from 2007 to 2015, the per capita consumption of household paper in China increased from about 4 kg to about 6 kg, while the total consumption increased from less than 5 million tons to more than 8 million tons. The increase during this period is equivalent to adding more than two Hengan (Hengan Internationgal Group's annualized production capacity was 1.26 million tons in the first half of 2017).

Zhitong Financial and Economic APP has learned that the per capita annual consumption of the United States and other developed countries has exceeded 20 kg, so although the production and sales of household paper in China ranks first in the world, there is still a large gap between China and developed countries. With the continuous improvement of the living standards of Chinese residents, there is still much room for improvement in the production and sales of household paper in China in the future.

Secondly, at present, the competition pattern of household paper in China is still relatively fragmented. According to relevant statistics, among China's household paper production enterprises, Hengan Internationgal Group, which has the largest share, has a market share of 10.1%. The market share of the top eight household paper production enterprises can reach 40%. Under the background of eliminating backward production capacity and consumption upgrading, it is beneficial for excellent enterprises in the industry to expand their market share.

So, what is the success of Vader and Hengan Internationgal Group, the two household paper manufacturers listed in Hong Kong, and which one will be more competitive in the future? In this paper, we compare and analyze the similarities and differences between Hengan and Vida from four dimensions: product, brand, revenue structure and sales channel.

Hengan brand has obvious advantages.

Zhitong Financial APP learned that at present, Hengan Internationgal Group mainly has three major business segments, including sanitary napkin products, disposable diaper products and tissue products, among which sanitary napkin products are five brands such as Amele, Xin breath and Seven-dimensional Space, disposable diaper products are five brands such as Enerle and Doya, and four brands of napkin products are heart to heart and Pinot.

According to the 2017 list of the most valuable brands in China, Heng'an 's leading product, heart-to-heart printing paper towels, has a brand value of 14.059 billion yuan, ranking first among all brands of household paper.

At present, Vinda International mainly has two major business segments, including household paper products and personal care products, among which household paper brands are Depot, Vida and Dokang. Among them, Vida paper towels ranked 345 among the 500 most valuable brands in China in 2017 and second among household paper brands.

Vader's personal care products have three categories, including incontinence care, women's care, and baby care, with a total of seven brands. In terms of the breadth of product categories and the breadth of major brands, Hengan and Vida are better than their peers.

Vader has a high degree of internationalization

In terms of revenue structure, Vader achieved an operating income of HK $6.308 billion in the first half of 2017.Of this total, revenue from household paper products was HK $5.073 billion, accounting for 80.42%, and revenue from personal care products was 1.235 billion yuan, accounting for 19.58%.

In terms of the geographical composition of revenue, Vader's revenue from Chinese mainland last year was HK $4.642 billion, accounting for 73.6%; revenue from Hong Kong was HK $521 million, accounting for 8.26%; and revenue from overseas markets was HK $1.144 billion, accounting for 18.14%.

Zhitong Financial APP learned that after Vader officially launched its Vida Deluxe series in Malaysia (the best performing market in ASEAN) in May this year, the company began to sell tissue products throughout the ASEAN market. The degree of internationalization of the company's operation is expected to be further enhanced in the future.

In contrast, Heng'an achieved an operating income of 9.563 billion yuan in the first half of 2017.The revenue from tissue products was 4.57 billion yuan, accounting for 47.79%, and the business income from sanitary napkins products was 3.44 billion yuan, accounting for 35.97%.The income from disposable diapers was 1.001 billion yuan, accounting for 10.47%.

It is worth noting that all of Hengan's business income comes from China. However, Hengan is currently improving the situation.

Zhitong Financial APP noted that Hengan announced the acquisition of 80 million shares of Huangcheng Group (stock code 7203), a listed Malaysian company, on June 5, 2017, accounting for about 50.45% of Huangcheng's share capital. The transaction was priced at 91.2 million MYR (equivalent to about 146 million yuan).

It is reported that Huangcheng Group is mainly engaged in investment holding and the production and processing of fiber cracked products, including adult and baby diapers, sanitary napkins and tissue products, cotton products and processed paper. The Imperial Group's sales network covers the main sales channels in Southeast Asia (including large supermarkets and personal hygiene stores). Hengan is expected to use the existing sales network of the Imperial Group to promote its products to the Southeast Asian market.

E-commerce channels become the focus of contention.

When it comes to channels, it is naturally the focus of our attention to consumer goods. Especially for daily consumer goods such as household paper, the penetration of channels is an important basis for enterprises to open profit space.

The offline channel of household paper is mainly through the display of shopping malls, supermarkets and convenience stores, which is also the main sales channel of household paper. In recent years, with the accelerated process of urbanization in China, people further speed up the pace of life, shopping malls and supermarkets are occupied by more and more time, coupled with the rapid growth of e-commerce and logistics industry, more and more people choose to buy consumer goods online.

According to statistics, the proportion of retail sales of household paper e-commerce channels in China has increased to 12.1% in 2015, maintaining rapid growth for six consecutive years. Among them, baby diapers account for 40% of online channel sales. In the future, e-commerce channels are expected to be on a par with traditional channels and become the main sales channel of household paper.

E-commerce channels account for a growing proportion of the revenue structure of Hengan and Vida.Of Hengan Internationgal Group's operating income of 9.563 billion yuan in the first half of 2017, 840 million yuan came from e-commerce channels, an increase of more than 160 percent over the same period last year.E-commerce's contribution to overall sales rose to 8.8% (3.3% in the same period in 2016). Vader accounted for about 20 per cent of e-commerce channel sales in the first half of the year (about HK $1.3 billion). It is reported that there are e-commerce operations in both the mainland and Southeast Asian markets.

Judging from the sales of e-commerce channels in July 2017, Heng an and Vida's paper towels and rolls are among the top 10 on the sales list.

In terms of sanitary napkin sales, Heng an's Seven Space e-commerce channel ranked fourth, while Vader's two products, Vail and Light Curve, ranked 17th and 19th.

In terms of diapers, Hengan's Anerle ranked sixth with sales of about 500000 pieces, while Vader did not have related products on the list.

Through comparison, we have generally learned that Vader has been able to compete with Hengan in the breadth of product categories and brands, and even outperforms Hengan in product internationalization and e-commerce channels for some products. The advantage of Hengan is that its brand awareness is much better than that of Vida. In addition, Hengan has a significant lead in sales of female care products and disposable diapers, which makes the company's overall revenue more than 50% higher than Vida.

The problem came again. Zhitong Financial APP noted that as of the close of trading on November 1, Vinda International shares had a market capitalization of HK $19.2 billion, Hengan Internationgal Group's shares had a market capitalization of HK $94 billion, and Hengan's market capitalization was 4.9 times that of Vinda. Why is Hengan's operating income only 50% higher than that of Vida, but its stock market capitalization is nearly 4 times higher than that of Vida?

Please follow the Zhitong Financial APP article, "Household Paper for hegemony (part two): the secret that Vader (03331) and Hengan (01044) have a 50% difference in revenue but a 4-fold difference in market value."