Event: (* unless otherwise noted, the monetary units listed in this article are in RMB. The company released its semi-annual report for 2021, with revenue of 1.764 billion yuan, an increase of 2.8% over the same period last year, an operating profit of 734 million yuan, an increase of 295% over the same period last year, and an adjusted net profit of 581 million yuan, an increase of 3.5% over the same period last year.
The barrier advantage of the flavor plate ensures a high profitability. The overseas production capacity of HNB recycled tobacco is divided into sections, 2021H1:
1) the flavor sector achieved a net revenue of 910 million yuan, a decrease of 2.22% compared with the same period last year, a decrease of about 63.3%, and a year-on-year increase in 0.8pct, in which the company's market share of traditional tobacco flavors remained stable, increasing its R & D investment in HNB flavors and the scope of application of customer products.
2) the net revenue of the tobacco raw materials sector was 209 million yuan, down 31.2% from the same period last year, and the 8.6pct rate was 29.4% lower than the same period last year, mainly due to the decline in sales prices as a result of the overall supply exceeding demand in the traditional recycled tobacco industry and fierce competition in the tobacco capsule industry. In order to cope with the depressed market environment of traditional recycled tobacco, the company has increased the investment and production of HNB recycled tobacco. At present, the company has provided some domestic customers with HNB recycled tobacco products. At the same time, the company's HNB recycled tobacco factory in Southeast Asia has basically completed plant construction and started the construction of related supporting facilities and equipment installation. At present, the factory has successfully developed customers and reached sales commitments, HNB recycled tobacco sector is expected to become a new business growth point of the company. In addition, the company is also actively improving the technology and product reserves of HNB cigarette filter rods to make a good reserve for the relevant market demand. 3) the incense raw material sector achieved net revenue of 320 million yuan, a year-on-year increase of 6.0%, a year-on-year increase of about 7%, and a decrease in 5.8pct over the same period last year. The revenue growth mainly benefited from the rebound in market demand after the epidemic, and the decline in profit margin was mainly due to the rise in raw material prices and the lower than expected market demand. 4) the condiment sector achieved revenue of 324 million yuan, an increase of 82.8% over the same period last year, and the operating profit margin was about 19.1%, mainly due to the increase in product sales driven by the recovery of demand in the domestic catering market. During the reporting period, the company actively developed the demand of catering enterprises in the post-epidemic era and launched a series of products, in which the sales revenue of sauce products doubled; as of June 30, 2021, there were more than 350 first-class dealers in the condiment section.
Profit forecast and investment suggestion
Under the general trend of the global development of new tobacco, the company, as the core raw material supplier of new tobacco, has a prominent competitive advantage. With the gradual clarity of the new domestic tobacco policy, and the gradual release of overseas tobacco sheet production capacity, the company relies on its leading R & D advantage and excellent product strength. Its new tobacco-related businesses, such as tobacco flavors, tobacco flakes, new tobacco materials, atomization flavors and tobacco oil, are expected to see rapid growth. We estimate that the company's revenue for 21-23 years will be 45.08pm 6.622 billion yuan, and its net profit will be 1.351 billion yuan 1.905 billion yuan. Taking into account the company's position as a core raw material supplier in the HNB field, its competitive advantage is very outstanding, with a corresponding 22-year 17 times PS, corresponding to a target price of RMB28.2 (corresponding to HK $34.0,0.83 RMB), maintaining a "buy" rating.
Risk hint: market development is not as expected, policy risk, international trade risk, new tobacco sector business is not as expected.