20220119-招银国际-Health_and_Happiness__BTSDF__New_Issue_3页_630kb

CMBI Credit Commentary Summary

Core Content Overview

This document provides a credit commentary on a new issue of Health and Happiness (BTSDF) '27, issued by Health and Happiness (H&H) International Ltd (1112.HK). The commentary includes an analysis of the issuer's financial position, business profile, and the expected yield for the new issue.

Key Information

• Issuer: Health and Happiness (H&H) International Ltd (1112.HK)
• Issue Size: USD 400 million
• Tenor: 5NC3 (5 years, 3 months)
• Use of Proceeds (UOP): Refinance existing term loan facility (USD 350 million) and RCF (USD 50 million)
• Credit Enhancement: Secured by offshore subsidiaries' shares, including Swisse Wellness Pty Ltd (Australia), Swisse China Ltd (HK), and Health and Happiness Hong Kong Ltd (HK)
• Security Ranking: Second-ranking basis under the Intercreditor Agreement with Syndicated loans
• Fair Value (FV): Expected to trade at $1% - 1.5% outside the existing BTSDF '24 (YTM: 5.6%), due to a 2.25-year duration extension
• Yield to Worst (YTW): The new issue is expected to have a YTM of 6% to 7%, tighter than FOSUNI '27 (YTM: 7.7%) and HONGQI '24 (YTM: 6.9%)

Company and Business Profile

• Founded in 1999, H&H is a Hong Kong-listed company with a market capitalization of HKD8.2 billion (USD1.1 billion) as of 2021.
• Ownership: 67% owned by founder Luo Fei.
• Revenue Mix:
  • 50% from infant milk formula (IMF)
  • 35% from Swisse supplements
  • 10% from pet segments (expected to contribute in 2022)
• Gross Margin: Expected to remain stable at around 64%, supported by the high-margin pet segment (67%).

Credit Profile

• Net Debt: Increased to RMB8.2 billion by end-2021 after acquiring Zesty Paw, up from RMB4.1 billion previously.
• Net Debt/EBITDA: Rose to 3.4x in 2021, compared to 2.0x in 2019 and 2.2x in 2020.
• Credit Rating: Moody's has placed H&H's Ba2 rating on negative outlook.
• Acquisition Impact: Zesty Paw was acquired at a high valuation of 35x 2020EV/EBITDA, and its contribution to H&H's EBITDA is expected to be RMB150 million – RMB200 million annually, significantly lower than H&H's RMB2.4 billion annual EBITDA.
• Deleveraging Outlook: Future deleveraging is expected to be slow, and the negative rating outlook is unlikely to be resolved in the near term.

Key Points

• The new BTSDF '27 is positioned as a consumption-related issue with scarcity value, leading to a tighter yield than similar instruments.
• The company's financial leverage has increased due to the acquisition, affecting its credit profile.
• The credit enhancement is secured, but ranks second in priority.
• The yield spread reflects the duration extension and the issuer's credit risk.
• H&H's business diversification into pet products is a positive factor, but the contribution to revenue is still limited.

Important Disclosures

• The report is not investment advice and does not guarantee future performance or accuracy.
• The information is subject to change without notice.
• Conflicts of interest may exist due to CMBIS's potential investment banking relationships with the companies mentioned.
• The report is intended for specific investors (e.g., major US institutional investors, Accredited Investors in Singapore) and not for general distribution.

Contact Information

• Polly Ng 吴宝玲: (852) 3657 6234 | polynng@cmbi.com.hk
• Glenn Ko, CFA 高志和: (852) 3657 6235 | glennko@cmbi.com.hk
• James Wen 温展俊: (852) 3757 6291 | jameswen@cmbi.com.hk
• CMBI Fixed Income: fis@cmbi.com.hk
• CMBIS: CMB International Securities Limited, a subsidiary of CMB International Capital Corporation Limited, which is a subsidiary of China Merchants Bank.

Author Certification

• The author certifies that the views expressed accurately reflect their personal views.
• The author confirms no compensation is tied to the views in the report.
• The author also confirms no trading in the covered stocks within 30 days prior to the report's issue, and no trading within 3 business days after.

Disclaimer

• The report is not an offer or solicitation to buy or sell any securities.
• It is intended for specific recipients in the UK, US, and Singapore and may not be reproduced or distributed without prior consent.