A cross-border acquisition deal worth HK$26.1 billion has been finalized. On the evening of March 11, Vinda International announced that Asia Pacific Resources Group would acquire a 72.62% stake held by Essity and Li Chaowang at HK$23.5 per share, totaling HK$26.1 billion. According to public information, Asia Pacific Resources Group is one of the world's largest, most technologically advanced, and most efficient pulp and paper producers, backed by renowned overseas Chinese businessman Chen Jianghe and his Singapore-based RGE Group, which has extensive investments in pulp and paper, cellulose fibers, and specialty cellulose, making it a globally recognized upstream enterprise. The HK$26.1 billion price tag also makes it one of the largest equity transactions in China's paper industry to date. Bringing Vinda under its wing means that Singapore's paper tycoon Chen Jianghe's "transnational paper kingdom" has gained another foothold, and it is expected to leverage Vinda and its brands to expand in the Chinese market. For Vinda, with the support of international capital, the former "domestic paper king" may have more possibilities to explore overseas markets.
Declining Performance Forces Vinda to "Sell Itself"
Public information shows that Vinda Group was founded in 1985 and listed on the Main Board of the Hong Kong Stock Exchange in 2007. After 39 years of development, Vinda International has become one of Asia's largest hygiene product companies, with sales networks extending to Malaysia, South Korea, Singapore, Thailand, and other countries. To date, Vinda International has established 13 modern production bases and one Southeast Asian headquarters, and has developed nine major brands covering four major categories: household paper, feminine care, adult incontinence care, baby care, and commercial cleaning and hygiene solutions, serving 2 billion consumers in the Asia-Pacific region. According to the 2023 financial report, Vinda Group's annual revenue was HK$19.999 billion. The high-end paper product portfolio, represented by Vinda Cotton Soft, Tempo, and Tork series, achieved double-digit sales growth. In addition to its high visibility in China, Vinda's baby care brand Drypers has been a bestseller in Malaysia for many years, consistently ranking first in the market. However, due to factors such as rising raw material costs and intensified competition, Vinda International's performance has declined over the past three years, leading to the current "sell-off" outcome. According to the financial report, although Vinda International's revenue has been growing in recent years, the growth rate has dropped from 13.11% in 2021 to 2.99% in 2023; net profit attributable to shareholders has fallen from HK$1.874 billion in 2020 to HK$253 million in 2023, with net profit growth rates of 64.66%, -12.59%, -56.91%, and -64.16% from 2020 to 2023. Image source: Futu Niu Niu APP Regarding the performance decline, Vinda International explained that gross profit and net profit continued to be negatively impacted by inflationary pressures and intensified market competition compared to 2022. Although raw material prices have significantly fallen, the time needed to digest previously purchased raw material inventory has had a certain negative impact on profit margins. In fact, the entire household paper industry is mired in rising raw material prices. Public data shows that pulp prices have been rising since November 2020, with pulp quotes around RMB 4,583 per ton in November 2020, hovering between RMB 5,500 and 6,000 per ton at the end of 2021, and spot quotes rising to RMB 7,400-7,800 per ton by the end of 2022. In 2023, although pulp prices fell sharply, they rebounded to a mid-level by the end of the year, with the average price in the last natural month fluctuating around RMB 6,000 per ton. Since March this year, due to the Finnish strike, global wood pulp prices have continued to climb, leading to a new round of cost increases in the paper industry. According to the "2023 China Household Paper Industry Market Research Report" released by Hua Jing Industry Research Institute, pulp is the main raw material in household paper production, accounting for about 50%-70% of production costs. Therefore, slight fluctuations in upstream pulp prices can affect the revenue and profits of downstream enterprises. Limited performance growth, low industry concentration in the domestic paper industry, and the continuous upward pressure on raw material costs have put general pressure on the operations of several leading household paper companies. Under such circumstances, having a buyer with rich industrial resources willing to acquire at a high price may not be a bad choice.
With the Support of Giants
Vinda May Reverse Its Decline
Asia Pacific Resources Group, which offered HK$26.1 billion, also has a significant background. Public information shows that Asia Pacific Resources Group has built one of the world's largest pulp and paper mills in Indonesia, and Chen Jianghe himself is known as Indonesia's "Paper King." In addition, RGE Group's business spans pulp and paper, palm oil, cellulose, and energy development. Indonesia is one of the countries with the most abundant forest resources in the world. Data shows that as of 2020, Indonesia ranked third globally with a forest coverage rate of about 68%, possessing rich timber and pulp resources. China is one of the world's largest tissue paper consumer markets. The "2024-2030 China Away-from-Home Tissue Paper Industry Development Trend Analysis and Future Investment Prospect Report" points out that the market size of China's tissue paper industry reached RMB 175 billion in 2021. Moreover, this market still has huge growth potential. According to data from the Household Paper Committee of the China Paper Association, from 2012 to 2021, China's per capita household paper consumption increased from 4.3 kg to 8.2 kg, but compared to developed countries such as the United States (29 kg) and Japan (17 kg), there is still room for improvement. Therefore, the cooperation between RGE and Vinda can be described as "each taking what they need." Although the domestic household paper market has huge potential, industry concentration is relatively low. According to Zhiyan Consulting data, as of 2022, the CR5 (Gold Hong Ye, Hengan International, Vinda International, Taisun Technology, and Lee & Man Paper) collectively held only a 36% market share. In comparison, in 2022, the top three U.S. household paper companies (Procter & Gamble, Kimberly-Clark, and Georgia-Pacific) held market shares of 32.9%, 18%, and 15.8%, respectively, totaling 66.7% of the market. During the same period, the top three in Japan's household paper market (Daio Paper, Kimberly-Clark, and Oji Paper) held a 59.6% market share. Referring to the development patterns of these developed markets, it cannot be ruled out that the domestic household paper industry may still undergo consolidation in the future. Zhiyan Consulting pointed out in its research report that due to current industry overcapacity and fierce market competition, it is difficult to raise product prices, severely squeezing the profit margins of production enterprises, and losses are relatively common. The industry has entered an accelerated reshuffling stage. Large enterprises with brand awareness will continue to maintain their leading competitive advantages, while small and medium-sized enterprises with poor risk resistance will be accelerated out of the market. With the support of Asia Pacific Resources Group and RGE Group, Vinda International will be better positioned to control costs, enhance its bargaining power in the upstream and downstream of the industry chain, and maintain a competitive edge in the new round of competition.
High-End and Going Global Become Trends
In the 2023 financial report, Vinda International mentioned "premiumization" 24 times and stated in its 2024 vision: "Vinda will continue to forge ahead, actively identify market trends and closely follow consumer needs, focusing on premiumization strategies and innovative concepts." Indeed, premiumization is a significant development trend in the entire household paper industry. Generally speaking, per capita household paper consumption is highly positively correlated with GDP levels. In economically underdeveloped periods, residents have insufficient purchasing power and are more willing to buy only the most basic household paper (such as toilet paper) at lower prices. When per capita disposable income rises, people's demand for health and high-quality life increases, and they are willing and able to afford higher-end household paper consumption (such as facial tissues and pocket tissues), and can use specific household paper categories for specific scenarios (such as hand towels and kitchen paper). With the continuous growth of China's economy and the improvement of people's living standards, the trend of consumption upgrading is evident. People's diversified needs are guiding the overall consumption habits of household paper toward more segmented and higher-end directions. The "2024 China Quality Household Paper Consumption Trend Insight White Paper" points out that after consumer demand upgrades, functionality, ingredients, and experience are all indispensable. From a demographic perspective, people aged 25-34 in high-tier cities who pursue high-quality life, especially those with sensitive skin and mothers, are more willing to pay for good tissue paper. Especially for categories with higher functional requirements and more direct skin contact, consumers are more willing to pay a premium. Image source: "2024 China Quality Household Paper Consumption Trend Insight White Paper" On the other hand, domestic paper brands going global is also gradually becoming a trend. According to customs statistics, in 2023, China's household paper products continued to show a trade surplus, and export volume showed significant growth. Total household paper exports were approximately 1.1131 million tons, a year-on-year increase of 41.67%, with an export value of US$2.373 billion, a year-on-year increase of 16.71%. In terms of export volume, household paper exports are still mainly finished products (toilet paper, pocket tissues, facial tissues, napkins, etc.), accounting for 71.0%. Driven by both policy and market forces, domestic paper companies have also significantly increased their enthusiasm for overseas layout. According to Zhuochuang Information statistics, to date, leading paper companies such as Gold Hong Ye, Hengan International, Vinda International, and Chenming Paper have all actively expanded overseas business. Taking Vinda International as an example, on December 16, 2022, the first phase of Vinda International's new Southeast Asian headquarters was officially put into operation. From the disclosed information, Vinda International's new Southeast Asian headquarters is equipped with leading production facilities, covering automated and intelligent production, fully covering five major functional modules: R&D, production, warehousing, distribution, and management. Through this, Vinda extends its business to multiple Asian markets including Singapore, Indonesia, Thailand, Cambodia, Vietnam, and the Philippines. Chenming Paper has established multiple branches in the United States, Germany, Russia, Vietnam, India, and other countries, with products sold to dozens of countries and regions in Asia, Europe, America, the Middle East, and Africa. Cao Zhenlei, advisor to the Paper Industry Chamber of Commerce and chairman of the China Technical Association of Paper Industry, mentioned that in fact, China's household paper export prices are much higher than domestic market prices. Therefore, it is recommended that more enterprises actively explore overseas markets to seek new growth points. The Russia-Ukraine conflict has led to soaring energy prices in Europe, making household paper a scarce commodity. China has sufficient high-quality household paper production capacity to meet market demand in Europe and other regions. As a leading domestic paper company, Vinda International has achieved certain results in both of the above aspects. For example, its high-end feminine care brand Libresse, high-end household paper brand Tempo, and high-end adult incontinence care brand TENA all have good market shares in the industry. The aforementioned "overseas factory construction" move further demonstrates Vinda's ambition in the international market. But on the other hand, pulp market prices remain volatile and unpredictable. For household paper, a necessity product, consumers are highly sensitive to price changes. Therefore, large paper companies find it difficult to resolve difficulties solely through continuous price increases when facing cost pressures. Although Vinda International has welcomed a "white knight" to rescue it, it is still difficult to make a clear judgment on the extent to which it can effectively alleviate Vinda's cost pressures. Recommended Reading