Main points of investment
Domestic flavors and spices and tobacco sheet leader, card position new type of tobacco. The company has ploughed the field of flavors and fragrances for many years, has a deep accumulation in flavoring technology, and then makes an integrated layout around the depth of the industrial chain, sets foot in the fields of tobacco raw materials (tobacco flakes) and fragrance raw materials, and constantly develops new business. Jiahao Food is acquired to enter the seasoning industry. The company's own positioning as the "delicious life leader", combined with its own advantages, but also out of the optimism of the new tobacco industry, strive to become the core supplier of new tobacco supplies.
The demand for harm reduction drives the change of the tobacco industry. The tobacco industry has a broad space and a high profit margin. With the increasingly strong demand for harm reduction, atomized e-cigarette and heating non-combustion (HNB) emerge as the times require, and the permeability increases continuously. As of mid-2021, atomization is dominant in the United States and HNB is dominant in Japan. China's HNB sales policy has not been liberalized, but China Tobacco is actively arranging pilot projects. We believe that HNB is expected to become the mainstream scheme of new tobacco in China in the future, with a penetration rate higher than that of atomized e-cigarettes, bringing considerable investment opportunities.
The development trajectory of the new type of tobacco is similar to that of electric cars. As terminal consumer goods with large market space, we believe that the new type of tobacco is comparable to new energy vehicles, and the new type of tobacco is in the early stage of industry demand. New energy vehicles sprouted in 2010, Tesla, Inc. brand-driven and consumer education, officially entered the volume growth period in 2020; heated unburnt tobacco sprouted in 2014, Philip Morris International launched IQOS for consumer education, China Tobacco actively explored domestic tax policies and conducted overseas product pilot projects. The revenue and market value of the core suppliers of the new tobacco industry have more room for growth, while reviewing the history of electric vehicles represents the company's historical market, stocks have good performance opportunities in the industry development period.
Grasp the trend of consumption upgrading, essence, flake two-wheel drive. The company has rich accumulation in the field of tobacco flavor, has a large production capacity reserve, and the perfumer has a deep understanding of the process. In terms of tobacco flakes, the company has a domestic scarce private license and a scarce thick slurry production capacity. If the domestic market is liberalized, flavors and flakes have more room for growth. The company actively develops overseas business and sets up a factory in Indonesia, and the in vitro independent brand NUSO smoke bomb has also been sold overseas.
Profit forecast and investment rating: we believe that the company is a high-quality track leader, the industry has not yet ushered in the volume growth stage, profits can not be released in the short term, we need to look forward to the longer-term stage, PE valuation method is not applicable for the time being, we should use PS valuation method. We estimate that the company's revenue from 2021 to 2023 will be 4.13 billion yuan, 4.62 billion yuan and 5.7 billion yuan respectively, which is + 7.0%, + 11.9% and + 23.3% respectively over the same period last year. The corresponding current price (November 25) PE is 59 times, 53 times and 42 times respectively, and the corresponding PS is 15 times, 13 times and 11 times respectively. We selected Jiyou Co., Ltd. (HNB consumables supplier) and Smoore International Holdings Limited (leader in atomized e-cigarette manufacturing) as comparable companies. The average PS valuations of comparable companies from 2021 to 2023 were about 17 times, 13 times and 10 times, respectively. Considering that the company has a strong competitive advantage in the field of HNB, process understanding, product reserve and customer resources are all in the leading position in the industry, and there is much room for long-term growth, we give the company 17 times PS in 2022 with a target price of HK $30.4, with a "buy" rating for the first time.
Risk hint: domestic HNB policy delays the release of risk, consumer acceptance is lower than expected risk, static valuation risk is too high, tobacco policy risk
