Headwinds in 2022 for Hengan and Blue Moon, but Latter Better Poised for Medium-Term Growth

We are transferring coverage of Blue Moon and Hengan to a new analyst, lowering our fair value estimate of no-moat Hengan to HKD 39.50 per share from HKD 49 per share; and narrow-moat Blue Moon to HKD 7.40 per share from HKD 10.50 per share. A more cautious view on medium-term top-line and profit growth is the main factor for our downward revision to the fair value estimates of these companies. We think Blue Moon’s shares offer more value at this point, although with less upside versus our previous fair value estimate. We think Hengan’s shares are fairly valued, with low expectations priced in, but we have little conviction that the company could deliver upside surprises. We expect the company to face margin compression over the medium term with pressure on pricing and volume, due to fierce competition in both the tissue and sanitary napkin markets. At the same time, Hengan has to cope with channel transition from offline to online, whereas Blue Moon has adapted better to the changing channel landscape.