The leading flavor and fragrance industry, deeply ploughing China Taste Consumer goods Market Co., Ltd. was founded in 1996, is the leading enterprise of flavor, flavor raw materials and tobacco raw materials in China, and is currently ranked 11th in the world and the only Chinese company on the list. In recent years, the company's overall revenue shows a fluctuating upward trend. After 2015, the company will reorganize the business sector, split the flavor business, and increase the input of flavor and tobacco raw materials to open a new growth point of the company's profits. The company's continued high gross margin mainly benefits from the industry characteristics of the tobacco flavor business as well as the technical barriers and R & D advantages of new cigarette materials. We believe that despite the two major difficulties of the regulation and control of the traditional cigarette industry and the slowdown of the food industry, the company's R & D investment continues to increase, and the industry-leading technology reserve lays the foundation for sustainable development. the rebound of key profit indicators in recent years also reflects the company's strong competitive advantage and profitability.
Separate the essence and flavor raw material business to meet the needs of the development of the industry
The flavor and fragrance industry shows an oligopoly pattern, and the degree of concentration has been increasing in recent years, with CR11 reaching 78.9% in 2017. The leading enterprises have significant advantages in barriers in all aspects of the industrial chain: 1) because of their capital and scale advantages, more raw material factories can be controlled in the upstream flavor industry, and have stronger customer acquisition capacity; 2) in the middle reaches of the flavor manufacturing industry, more R & D forces can meet customer needs; 3) the trend of downstream beneficial demand diversification can promote the development of the upper and middle reaches. In 2016, the company separated the flavor business and the flavor raw material business, so that the two major businesses can be expanded horizontally. Among them, the flavor business is loaded with "Huabao shares" to be listed in A shares, and continues to specialize in the flavor business with the advantage of barriers, while the fragrance raw material business strengthens the supply strength through epitaxial acquisitions, and the relay flavor business becomes a new driving force for the company's profit growth.
The forward-looking layout of tobacco raw materials, following the policy guidance, firmly seize the market opportunity tobacco raw materials industry with the development of policy, "cigarette level" is the basis of "profit, tax and growth", and "high aroma, low tar and low harm" required by "Chinese cigarettes" is the optimization direction of China's cigarette products, and the selection of tobacco raw materials is the key factor whether cigarette products can achieve the above requirements. Tobacco raw material business is the company's second largest segment of business, the main product tobacco sheet has a coke reduction effect, as the tobacco inventory is coming to an end, this business may meet new opportunities for development. Another main product of the company is the exploding beads that achieve "high aroma" in the new cigarette materials. "thin, medium and short explosions" has become an important force in the increase of first-class cigarette sales in our country in recent years. With the production capacity of the company's burst beads, it is expected to further improve the performance of the tobacco raw materials sector.
Endogenous + epitaxial multiple ways to develop a new type of tobacco, the company's performance growth of the second pole has been formed!
With the rapid growth of the new tobacco market, the company actively makes efforts to heat new tobacco businesses such as non-combustible products and e-cigarettes through a variety of ways:
Heating non-burning: subsidiary Guangdong Jinye has the leading technology of recycled tobacco in China, which is also applied to the manufacture of smoke cartridges in heated non-combustible tobacco. The company has won the bid for Yunnan Zhongyan heating non-combustible cigarette project. Yunnan China Tobacco is expected to participate in the upstream supply of tobacco cartridges.
E-cigarette: 1) establish its own e-cigarette brand SPV, and test the water in China through various channels. And intends to rely on inherent advantages, involved in e-cigarette oil products; 2) acquisition of e-cigarette enterprises VMR, actively expand overseas markets.
Profit Forecast and Investment suggestion (in RMB): we estimate that the company's revenue from 2018 to 2020 will be 44.18,52.05 and 6.104 billion yuan respectively, the net profit will be 18.63,24.25 and 3.094 billion yuan, the EPS will be 0.55,0.71,0.91 yuan, and the corresponding PE of the current market capitalization is 7,6,4 times. Based on the company's leading advantages and R & D strength in China's flavors and fragrances, scale advantages and first-mover position in the field of tobacco raw materials, as well as the synergy between its own technology and channel advantages and new tobacco business, we compare the price-to-earnings distribution of comparable companies in the same industry. We value the company at 12 times in 18 years and the target price is 6.6 yuan (HK $7.62 at the exchange rate of August 25, 2018). For the first time, coverage gives a "buy" rating.
Unless otherwise specified in this article, the unit shall be in RMB. In this paper, except for the target price, there is no conversion of Hong Kong dollars in the measured data.
Risk hint: market development is not as expected, policy risk, international trade risk
