• Entry of new substantial shareholders, China's largest producer of sanitary napkins, baby diapers and tissue papers, Hengan International Group Ltd to faciliate multi year growth by tapping on China's growth

• Revenue and margins to improve significantly vis-a-vis the group's exposure to China, Indonesia and Japan market, as a result of Hengan's business network reach

• Restructuring exercises post mandatory general offer ("MGO")

Initiate coverage - BUY with a TP of RM6.88 per share based on PER16 on projected adjusted earnings per share of RM0.43 per share. We believe that the group's potential is under appreciated and investors are not pricing in multi year growth arising from the group's new substantial shareholders

Entry of new substantial shareholders, Hengan, completed the 50.4% takeover of the group in the prior month. Subsequent to the acquisition, the Group effectively transformed into a subsidiary of Hengan. Hengan (HKG: 1044) is listed on the Hong Kong Exchange and is a constituent with a market capitalization of HKD 73bil (Equivalent to RM40bil circa.).

Hengan has made numerous acquisitions in the past, including the acquisition of Hong Kong Pharmacare Company Limited in 2004 and Fujian Qin Qin Foodstuff Company Limited in 2008, as part of Hengan's first wave and second wave reform to create a multinational giant. The acquisition of Wang-Zheng is part of the company's third wave reform plan.

Hengan's household brands include Anerie, Anle, Space7, h'yeas, Junichi, Q.Mo. The group's extensive global reach positioned Hengan into the largest producer of napkins, baby diapers and tissue papers in China, and 3rd largest in the world.

Revenue and margins to improve significantly post acquisition, we expect revenue and earnings to improve significantly. Our in house estimate forecasts revenue and earnings jump of 4x, from sales to Indonesia and China. Margins are expected to improve significantly due higher economies of scale, lower cost of sales due to Wang-Zheng transforming into a sales and trading arm  (No longer a trading and manufacturing arm on it's own) for Hengan and sales in a stronger currency, consisting of a combination of RMB and USD.

Our forecast suggest revenue and earnings growth of 200% in 2017, 30% in 2018 and 8% in 2019.

Revenue:

2017 - RM900mil

2018 - RM1.2bil

2019 - RM1.3bil

Earnings after tax and minority interest:

2017 - RM85mil

2018 - RM102mil

2019 - RM110mil

Restructuring exercise post acquisition of the group, Hengan could inject it's assets worth in excess of RM1bil into the group via a combination of share-for-share swaps and rights issuance. We believe that this would facilitate Wang-Zheng's exposure to China and Indonesia in efforts to boost revenue and earnings.

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