The results are in line with the previous profit forecast

The company announced 1H21 results: 1H21 revenue of HK $3.694 billion, an increase of 96%, and a net profit of HK $130 million, an increase of 126.8%, in line with the previous profit forecast. The significant improvement in performance was mainly due to the recovery of the company's vigorous expansion of new tobacco business and tobacco import and export business.

Trend of development

1. 1H21 revenue increased by 96% over the same period last year, roughly returning to the 1H19 level. The recovery of the supply chain contributed to the recovery of tobacco import and export business, and the new tobacco business continued to expand at a high speed. From the perspective of business, the export revenue of ① tobacco products reached 1.074 billion Hong Kong dollars, an increase of 3.6% and 14.9% respectively. The company actively adjusts its business strategy, optimizes its product structure, and sells tobacco products that are cost-effective and marketable. The import revenue of ② tobacco products reached 2.569 billion Hong Kong dollars, an increase of 223.3% and 356.3% respectively, mainly due to the close communication between the company and the industrial chain to reduce the adverse impact of the supply chain. The products delayed by the company last year arrived in Hong Kong smoothly in 1H21. The export revenue of ③ cigarettes reached 27.6 million Hong Kong dollars, down 44%, and the export volume decreased by 37%. Under the repeated outbreaks abroad, the entry and exit restrictions were strict, and the passenger flow of duty-free shops declined, and the business continued to be under pressure. The export revenue of ④ 's new tobacco products reached 23.7 million Hong Kong dollars, a rapid increase of 554.5% over the same period last year, and the export volume also increased by 544%. The company pays close attention to the development of new tobacco around the world, and vigorously expands new blank markets and channels while further ploughing the existing market.

2. The profitability has been improved. 1H21's gross profit margin increased to 4.7% year-on-year, mainly due to the optimization of the structure of tobacco import and export products. The rate of management expenses decreased to 0.7% from the same period last year, mainly due to the company's vigorous efforts to reduce costs, increase efficiency, control expenses, and slightly lower the rate of financial expenses compared with the same period last year. Under the comprehensive influence, the company's 1H21 net interest rate reached 3.5%, and the fundamentals of 0.5ppto3 and 2H21 are expected to recover further compared with the previous year, and the new tobacco business can continue to grow at a high speed. The company's 1H21 has reduced the adverse impact of the epidemic by strengthening the supply chain capacity, and its performance has gradually returned to the 1H19 level, and the company plans to actively plan capital operation, strengthen its own advantages, improve operation quality and transform to the whole industry chain in the future. In terms of the new tobacco business, we believe that the company is expected to continuously improve the deployment response speed of the supply and demand side, consolidate existing advantages and continue to develop incremental customers and markets.

Profit forecast and valuation

The earnings forecast for 2021 / 2022 will remain unchanged, and the current share price will correspond to 29x of 2021 / 2022 31max / 2022. Maintaining a neutral rating, based on the smooth recovery of the business and the rapid growth of the new tobacco business, the target price was raised by 4% to HK $18.5, corresponding to 34 times the 2021 / 2022 38 pesque, which is 20% upside from the current share price.

Risk.

The risk of trade friction and exchange rate change; the downward risk of tobacco consumption; the recurrence of overseas epidemic situation.