Key points of investment:

The demand side of health products continues to expand, and online e-commerce has become the main sales channel. Leading Swisse is expected to make full profit, and the four major brand upgrades under the “1+3” strategy are expected to unleash overall profit space.

Develop multiple businesses together to protect the health of the whole family

Jianhe International (H&H) was founded in 1999 and listed on the main board of the Hong Kong Stock Exchange in 2010. Adhering to the strategy of diversification, the company's three major businesses of infant care, adult health care, and pet nutrition have cooperated. Revenue increased from 10.1 billion yuan in 2018 to 13.9 billion yuan in 2023, with a CAGR of 6.57%.

Among them, revenue from the adult health care business grew steadily, and the pet nutrition business grew rapidly, driving an accelerated increase in revenue share in the North American market.

The online trend is clear, and the industry continues to expand

In the context of aging, residents' health awareness has increased, health care is being rejuvenated, geographical decline is accelerating, and the demand side of health products continues to expand. China's health products market increased from 99.3 billion yuan in 2013 to 333.5 billion yuan in 2023, with a CAGR of 12.88%. In 2022, China's per capita consumption of health products was only 25 US dollars, which has a lot of room for improvement compared to Japan, South Korea, Europe and the United States. On the supply side, online channels are expanding rapidly, and retail e-commerce has surpassed traditional offline to become the main sales channel, accounting for nearly 60% of retail sales in 2023. In terms of market share, Tomson Beijian led the market share, followed by Amway and H&H Holdings (Swisse), and the e-commerce brand Swisse had a steady increase in market share, reaching 5.4% in 2023.

Swisse's “1+3” strategy began, and H&H Holdings acquired the Australian brand Swisse in 2015 and entered the adult nutrition care industry by acquiring the Australian brand Swisse and has now formed a “1+3” brand layout for Swisse Core, Swisse Plus+, Little Swisse, and Swisse Me. The main brand extends to oral beauty and skincare, with clear internal iterations and good feedback on new products.

Swisse Plus+ undertakes the advanced needs of the main brands, and boosts profit centers; Swisse Me uses innovative dosage forms to bind young people. Little Swisse covers children aged 2-12, filling the original gap in the market, and has since opened up product channels between Synergic and Swisse.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2024-2026 to be 150.59/161.84/17.501 billion yuan respectively, with year-on-year growth rates of 8.14%/7.47%/8.14%, net profit to mother of 8.57/10.88/ 1.295 billion yuan respectively, year-on-year growth rates of 47.24%/27.03%/18.96%, EPS 1.33/1.69/2.01 yuan/share respectively, and a 3-year CAGR of 30.55%. According to the Segment Valuation Act, the company's reasonable overall market value in 2024 was $9.443 billion, and the target price was $14.62 per share. According to the exchange rate of May 17, 2024, corresponding to HK$15.78, it was covered for the first time, giving it a “buy” rating.

Risk warning: risk of product quality and food safety, risk of rising raw material prices, risk of increased market competition, risk of choosing comparable companies across markets.