HONG KONG -- Hengan International Group, China's largest maker of sanitary napkins and diapers is preparing to enter a new race with cosmetics companies, after its profitability has been hit by high material costs.
The company's management said Hengan would launch product lines including facial masks and tampons as it seeks to diversify its portfolio with more profitable items. The new strategy will put it in direct competition with more experienced international brands in the two segments.
The change to the product mix also comes as the Fujian-based company struggles to find new growth engines in the world's most populous consumer market, with waning profit from its core tissue paper business -- which last year accounted for 49.9% of overall revenue.
While the sanitary napkin maker's revenue rose 13.5% to 20.51 billion yuan in 2018, its profits rose only marginally, by 2.6% to 3.8 billion yuan and its gross profit margin declined by 3.6 percentage point to 38.2%.
Hui Lin Chit, chief executive and vice chairman, blamed the poor performance of its tissue paper segment on squeezed margins due to the high price of wood pulp -- which is settled in U.S. dollars. He added that the substantial depreciation of the Chinese yuan against the dollar in the second half of last year worsened the situation, with wood pulp prices likely to continue to be affected by many uncertainties in the coming year.
To tackle this "embarrassing" situation, Hui said the company would launch more premium products to boost overall profitability in the year ahead and expand into the "female personal care product industry."
This includes a plan to enter the highly competitive beauty industry in China, which is crowded with domestic brands and international players from Japan, South Korea and Europe. Hui said they would start with facial masks and launch their first product line this year, but declined to give details on pricing and market position.
Meanwhile, Hui said Hengan would roll out its first batch of tampon products in the second half this year. This is a relatively underdeveloped segment in China, with only 2% of Chinese women using such products, according to a 2015 survey. While the company started work on tampons in late 2017, it has taken time to carry out market research in a segment that is currently dominated by Western brands.
"We will definitely launch tampon products this year," Hui said.