1. Steady and steady fragrance essence: tobacco flavor is the main flavor, food & daily flavor is auxiliary.
The growth path of the company is clear, starting with tobacco flavor in 2005, focusing on the horizontal expansion of flavor and flavor industry chain for a long time, and has now achieved full coverage of tobacco, edible and daily flavors. Before 2014, the company focused on the horizontal expansion of flavor and flavor business, and its revenue showed an overall upward trend; after 2014, the company entered a stage of rapid growth through integrated measures such as adjusting customer structure, diversified sales channels and epitaxial acquisitions.
Tobacco flavor enhancer: the overall performance of the main support, stable growth. Tobacco flavor and cigarette products complement each other. In recent years, cigarette production in China takes "cigarette level" as the task and "Chinese cigarette" as the guiding direction, both of which will lead to an increase in the demand for tobacco flavor. "Shenzhen Bolton" is the company's subsidiary responsible for the operation of tobacco flavors, focusing on the flavors in tobacco flavors, continuously enhancing the stickiness of existing customers and expanding new customer resources through high R & D technology. at the same time, the company acquired the flavor enhancer business of four tobacco flavor companies in 2016 to further expand market share and competitive advantage. In recent years, the business continues to grow steadily, and the profitability of the sector is on the rise.
Food & daily flavor: driven by downstream demand, performance fluctuates slightly. The diversification of downstream demand is the driving force for the development of the flavor and fragrance industry, and the emerging economy market provides a broad space for the downstream development of flavors and fragrances. "Dongguan Bolton" is a subsidiary of the company specializing in the operation of food and daily flavors, with rich product categories, strong R & D strength, domestic + foreign, offline + online, to enhance customer acquisition capacity through multiple channels. Has been in-depth cooperation with Huiyuan, Yili, Mengniu and other well-known enterprises for more than a decade, strong customer stickiness, with the continuous expansion of customer resources, the performance of food and daily flavor division may be improved in the future.
2. Innovate and develop new tobacco business: epitaxial acquisition opens a new direction to help improve performance.
In recent years, the company has started the process of vertical extension of the industrial chain through the layout of new tobacco. The new tobacco business has a rapid momentum, and its profitability is on the rise as a whole.
The company acquired Kimree to open up a new tobacco business. Geary mainly manufactures OEM electronic cigarette sets, and most of its products are sold under different brands through tobacco companies, independent e-cigarette manufacturers and other customers in more than 20 countries, including most global tobacco companies and top e-cigarette brands. Since Geary took over the operation of Chinese flavors and fragrances, it has entered a period of rapid growth and is expected to become a new direction of the company's growth.
Cooperate with Sichuan China Tobacco to heat non-burning tobacco, OEM smoking sets are now on the market! The first heating non-combustible tobacco smoking set "wide and narrow Kungfu" launched by China Tobacco Corporation in China is developed by Sichuan Tobacco and manufactured by Jiruizi Huizhou OEM, which has been listed on the foreign market. The cooperation between the company and Sichuan Tobacco Co., Ltd. is continuously advancing, and it will explore new tobacco fields in many directions, and is expected to enjoy the growth dividend of China's new tobacco industry first.
3. Investment advice and profit forecast
* except for the target price, the company's financial data are shown in RMB. We estimate that the company's revenue from 2018 to 2020 will be 11.85 billion yuan 1.312 billion, and the basic EPS will be 0.21, 0.27, 0.32, based on the closing price of 2.31 yuan (HK $2.63) on October 23, and the market capitalization of the day will be 10.96, 8.52, 7.13 times of PE. We are optimistic that the growth path of the company is to expand the scale advantage of tobacco flavor, and to enter the fast-growing new tobacco market at home and abroad with the advantage of flavor, giving the company a valuation of 15 times in 19 years, with a target price of 3.16 yuan (HK $3.57 at 2018-10-23 exchange rate). For the first time, the company was given a "buy" rating.
Risk hint: market development is not as expected, new tobacco-related policy risks, international trade risks