Event: on September 23, the company announced that it signed a quota purchase agreement with the seller (China Tobacco International Group Co., Ltd.), according to which the company conditionally agreed to acquire and the seller conditionally agreed to sell all issued and issued quotas of the underlying company (China Tabaco International do Brasil Ltda.) without any encumbrance and together with all rights attached to it. The target company for the acquisition is an investment holding company in Brazil, with CBT as its main investment at a purchase price of US $63.4 million (HK $494.5 million).
Sign with China Tobacco International Group to acquire Brazilian tobacco suppliers to further consolidate the overall competitiveness of the company's industrial chain.
In order to further strengthen the company's strategic position as a platform designated by China National Tobacco Corporation to engage in international business development, and to improve the layout of the tobacco industry chain, the company signed a quota purchase agreement with the seller China Tobacco International Group Co., Ltd., the target company is a company registered in Brazil on June 6, 2002, mainly engaged in investment holding, with CBT (China Brasil Tabacos Exportadora S.A.) as its main investment. CBT's main business includes tobacco procurement, processing, sales and export, as well as the sale of agricultural materials inherent in tobacco production. As of the date of announcement, CBT is 51% owned by the target company and 49% by Alliance OneBrazil. CBT's performance, assets and liabilities have been incorporated into the underlying group accounts. At present, the group's business includes assisting and supervising the high temperature baking, processing, sample preparation, inspection and procurement of tobacco and cigarettes, with many years of operating experience in Brazil. As of December 31, 2020, CBT sold 40600 tons of tobacco, with revenue of US $136 million (HK $1.063 billion) and net profit of US $17.8 million (HK $139 million), respectively.
This acquisition will extend the layout of the company's industrial chain, further expand tobacco business and diversification, reduce dependence on CNTC Group, optimize the company's long-term sustainability and reliability, and enhance the company's overall bargaining power and profitability. We believe that this acquisition is the first strategic integration of the industrial chain since the listing of the company, which strengthens the position and strategic significance of the company as a platform for capital market operation and international business development designated by CNTC, and strengthens the company's voice and resource advantage in the global tobacco market. The company is expected to continue to explore integration opportunities related to the industrial chain in the future, including the acquisition of overseas tobacco products operating entities, upstream tobacco products production and processing entities, etc.
The company's business model has outstanding advantages and strong scarcity.
Scarcity advantage: China Tobacco Hong Kong has the exclusive right to operate the relevant tobacco international business. According to document No. 60 of China National Tobacco Corporation, China Tobacco Hong Kong is the exclusive operating entity designated by China National Tobacco Corporation to engage in international business development platform and related trading business. We believe that this "exclusive status" is relatively rare and may continue to benefit from overseas expansion and equity mergers and acquisitions of China Tobacco in the future.
Business model advantages: steady cash flow, strong bargaining power. The company relies on China Tobacco Group, and its income has increased steadily in recent years; at the same time, due to the existing pricing policy, the gross profit margin of each business is less volatile and has higher anti-risk ability; business model and license advantages determine that the company has stronger bargaining power and better cash flow; overseas tobacco brands and channels may be acquired in the future to enhance competitiveness.
Profit forecast and valuation
We believe that the company relies on China Tobacco Group and has significant advantages in barriers, which is the only international business platform under the flag of China Tobacco at present, and is expected to be the direct beneficiary of the development and reform of China's tobacco industry. We estimate that the company's annual revenue in 21-22-23 will be HK $9.41 billion and net profit will be HK $2.11 billion and HK $295 million. The company is the only international business platform in China Tobacco system and gives "buy".
Rating.
Risk hints: policy change risk, sales below expectations, new tobacco development less than expected, M & An integration risk