Hengan International Group expects lower gross margin this year and next, as it ramps up production of tissue paper and disposable diapers.
But chief executive Hui Lin-chit, announcing interim results of the personal hygiene products maker yesterday, expected substantially larger profits and revenue as new factories started production this year and next.
In the first half, Hengan's turnover rose 41.8 per cent to $1.53 billion while net profit soared 61.5 per cent to $204.07 million. But its gross margin fell 1.7 percentage points to 40.9 per cent during the period because of stronger sales of low-margin items and rising raw material prices.
Demand for tissue paper in China was so strong Hengan had to outsource 32 per cent of the production, Daniel Chui wrote in a KGI Securities report.
Hengan dominated the mainland tissue paper market, the China Industrial Information Issuing Centre said.