Has the leading health product company with a market cap of less than 9 billion, H&H International, been unfairly sold off by the market?

Text & Image | Sister Tang

From HK$7.8 to breaking through HK$15, Health and Happiness (H&H) International Holdings $H&H INTL HLDG(1112.HK) has charted a trajectory in 2025 that defies market expectations. Despite recent pullback in share price, it remains a rare high-quality consumer stock in the Hong Kong market.

Just a year ago, the company reported its first annual loss since listing, with infant formula revenue plunging 25.8%, nearly labeled as a "value trap" by the market. At that time, skepticism surrounded H&H: declining birth rates, shrinking infant formula market, high-leverage operational risks, goodwill impairment concerns... These negative factors kept the stock price subdued.

However, the Q3 figures disclosed in November, continuing the strong performance from the interim report, rewrote the company's valuation narrative: RMB10.805 billion revenue, up 12.3% YoY, with infant formula sales surging 104% in the quarter, and Biostime's ultra-premium market share reaching a record high of 17.3%.

Breaking down this quarterly report, the synchronized recovery across three business segments stands out. Adult Nutrition & Care generated RMB5.243 billion revenue, up 6.0% YoY on a like-for-like basis, with 15.7% growth in China where Swisse maintains its #1 position in the overall VHMS market.

Channel performance was impressive too - cross-border e-commerce sales grew 23.1%, with Douyin channel surging 77.7%. Pet Nutrition & Care revenue reached RMB1.590 billion, up 8.2% like-for-like, as Zesty Paws maintained 12.4% strong growth in North America, with high-margin products contributing 33.7% to China pet business revenue.

But the real game-changer was the powerful rebound in Infant Nutrition & Care. This previously underperforming segment delivered RMB3.973 billion revenue in the first three quarters, surging 24.0% YoY, with infant formula up 33.3%. China market shone brighter - infant formula sales grew 35.2% YoY against Nielsen's reported 0.2% decline for the overall market.

These numbers show Biostime is gaining market share at above-industry pace, with ultra-premium share reaching 16.4% in Jan-Sep and 17.3% in Q3 - both record highs. Momentum accelerated further in Q3 with 104% quarterly infant formula growth, while previously declining infant supplements rebounded with 58.8% YoY growth.

During Double 11, Swisse ranked #1 in supplements on Tmall, JD and VIP.com, while Biostime infant formula GMV achieved double-digit growth - collective strength of core brands validating the business recovery.

Yet recent market performance suggests a disconnect between operational improvements and share price recovery. Investor concerns focus on: high goodwill, high debt, and why Q3 disclosed revenue but not profit. The last point particularly drew analyst scrutiny, implying earnings may disappoint.

But this inference lacks logical foundation.

Regulatorily, HK-listed companies must disclose interim and annual reports - Q3 updates are voluntary at management's discretion, a market norm not unique to H&H. Many outperforming firms skip Q1/Q3 reports - take Harbin Electric we've tracked, which doesn't disclose Q1/Q3 yet enjoys rising shares and earnings.

Disclosed metrics show continuous improvement: high-margin supplements now contribute 64.5% revenue, with China sales up 20.6% YoY. More crucially, the company proactively prepaid ~RMB300 million equivalent USD syndicated loans in Sep-Oct, maintaining RMB1.74 billion cash by Sep 30. Such deleveraging would be impossible with cashflow strain or profit deterioration.

This prepayment detail connects two key insights: business recovery has translated into genuine cash generation, while management uses this to optimize capital structure and reduce financing costs - an often-overlooked earnings lever.

In January 2025, the company refinanced - issuing new $300m 9.125% senior notes to redeem $297m 13.5% notes, cutting coupon by ~440bps and extending maturity to 2028.

Interim reports show normalized interest expense down 10.8% YoY in H1, with implied annualized rate falling from 7.07% to 6.63%. RMB-denominated and hedged debt rose from 0% at end-2023 to 75.7%, reducing FX risk. From refinancing to currency swaps, coupon reduction to prepayment - these controllable actions create earnings flexibility beyond passive rate environment exposure.

Objectively assessing H&H, goodwill risk can't be ignored. At end-2024, goodwill stood at RMB7.604 billion (~40% assets), mainly from Swisse, Zesty Paws and Solid Gold acquisitions. The RMB124 million 2024 impairment concerned non-core European brands Dodie and Good Gout (combined RMB113 million end-2023 goodwill) - more a one-off clearance than systemic risk signal.

Core brands Swisse and Biostime - carrying most goodwill - show operational strength as detailed earlier, with growing market share supporting book value. Any further impairment would likely remain contained.

Valuation-wise, at ~HK$13.6 (HK$8.75b market cap) against 2024's RMB13.05b revenue, P/S is just 0.67x. Peer comparison shows By-Health $BYHEALTH(300146.CN) at ~RMB12 (RMB20b cap) trades at 2.9x P/S for 2024's RMB6.838b revenue.

H&H's P/S is significantly lower despite far superior revenue growth (By-Health's Jan-Sep revenue fell 14.27%). With supplements now 67.7% of revenue versus By-Health's single adult supplement focus, H&H's diversified adult-infant-pet portfolio stands out.

For high-leverage, multi-business transitional firms, EV/EBITDA better reflects true valuation. H&H's 2024 adjusted comparable EBITDA was ~RMB1.18b. At current EV (HK$8.75b cap + ~RMB8b net debt ≈ HK$17b), EV/EBITDA of 14-15x remains undervalued.

We believe current pricing reflects historical balance sheet burdens more than operational improvements. For investors tolerating short-term volatility awaiting deleveraging completion, buying this global nutrition platform - with three growing segments, healthy cashflow and active debt restructuring - at 0.64x P/S presents asymmetric risk-reward.$H&H INTL HLDG(01112.HK) $BYHEALTH(300146.SZ) 

Disclaimer: For learning and exchange only, not investment advice.