We are optimistic about the business model and market space of tobacco bomb raw materials under the new tobacco wave, as well as the core competitiveness of the company. Huabao International is a leading enterprise of traditional tobacco flavor in China. With stable cooperation with China Tobacco for a long time, excellent product strength and comprehensive service ability have been confirmed. With the spring tide of global tobacco control and harm reduction, the new type of tobacco takes advantage of the situation, and the current permeability still has a lot of room for improvement, in which the smoke bomb raw material business model is excellent, the expansion space is broad, and the company is forward-looking around the omni-directional layout of each structure of cigarettes. Leading in technology reserve and production capacity layout, it is expected to continue the in-depth cooperation with China Tobacco in the new tobacco field, while expanding overseas customers, and the growth space is expected. We expect the company's 21-23 net profit to be 1.01 billion yuan / 1.08 billion yuan / 1.48 billion yuan, and the share price on December 16 corresponds to 22 / 23 PE as 36X/26X, giving a "highly recommended-A" rating for the first time.
Focus on the taste of consumer goods, essence basic plate stability and growth coexist. As the core business segment of the company, tobacco flavor is highly profitable. Due to the strong taste stickiness and low cost ratio downstream, the company relies on strong R & D strength and comprehensive service ability to build a stable customer relationship.
Food and daily chemical flavors benefit from the steady growth of downstream demand, and there is still room for the company to increase its layout. In addition, the company actively opens up the upstream and downstream of the industrial chain, giving full play to synergy and opening the ceiling of long-term growth.
Under the new tobacco wave, the business model of smoke bomb raw materials is excellent and the market space is broad. In terms of the HNB industrial chain business model, the demand-end cigarette bomb repurchase frequency is high, the consumption stickiness is strong, the core key technologies of the supply side are gathered here, and some domestic smoke bomb raw materials implement the license management system, the competition pattern is more clear and stable, and the business model of smoke bomb raw materials is better from both ends of supply and demand. In terms of market space, the unit consumption and unit price of tobacco flakes and tobacco flavors in HNB have increased significantly, and the increase in permeability has brought broad room for expansion of smoke bomb raw materials. According to our estimates, when the permeability reaches 25%, 50%, 75%, 100%, the scale of domestic HNB tobacco flakes will reach 379, 758, 786, 151.5 billion yuan, and the scale of HNB flavor will reach 711,142, 213,284 billion yuan.
The company focuses on the forward-looking layout of the key raw materials of cigarettes to enhance the integrated supply chain barriers. ① tobacco core materials: different from traditional cigarettes, tobacco flakes play a core role in HNB. Thick paddle method is more suitable in technology, homogenization level and effective material carrying capacity are the key, and different from cut tobacco in traditional cigarettes, HNB sheets are often non-standard products (containing flavors). In the future, product strength and comprehensive service capabilities will be the core competitive elements. Relying on Guangdong Jinye's qualification barriers and customer and technology reserves in the traditional sheet field, the company is prospectively laying out new sheet production capacity and patented technology, and laying out overseas production capacity in Southeast Asia. ② HNB essence: the amount and importance of essence in HNB is also greatly increased, the difficulty of production quality and technical requirements is also improved, the company has rich talents, experience, equipment, formula, etc. in the field of tobacco flavor, with obvious first-mover advantages, and has made achievements in the R & D and production of HNB flavor, in addition, as the new thin films are usually carried with flavors to sell, the company's advantages in tobacco flavor will complement each other with the thin slice business. ③ mouth stick:
Nozzle rods also play an important role in the product power of HNB. Low flue gas flow and high suction temperature are two major difficulties, and the three-stage structure of PMI is not optimal. The company has accumulated research and development patents on the structure and materials of nozzle rods to enhance the suction experience. We believe that the company is expected to rely on its strong product strength and R & D and innovation capabilities in the key raw materials of HNB, superimpose its integrated comprehensive supply and service capability, continue its in-depth cooperation with China Tobacco in the new tobacco field, and take NUSO as the starting point to expand overseas high-quality customers, and then quickly capture changes in consumer demand, carry out iterative product upgrading, and constantly enlarge the first-mover advantage.
Profit forecast and investment advice: the company's net profit from 2021 to 2023 is expected to be 1.01 billion yuan / 1.08 billion yuan / 1.48 billion yuan in 21-23 years, an increase of 140.3%, 7.0% and 37.4% respectively over the same period last year. The corresponding EPS is 0.32 per share, 0.35 and 0.48 yuan per share, and the stock price on December 16 corresponds to 22 / 23 PE respectively. For the first time, the company is given a "highly recommended-A" rating.
Risk tips: policy regulatory risks, lower-than-expected penetration risks, lower-than-expected customer development risks