The company is in the period of adjustment.
Revenue and profit in fiscal year 15 recorded 2.1 per cent and 0.5 per cent growth respectively: the company's operating income in fiscal 2015 rose 2.1 per cent to HK $4.33 billion, while net profit attributable to shareholders rose slightly to HK $1.987 billion. Net profit attributable to shareholders fell 0.8 percentage points year-on-year to 45.9 per cent, with no dividend at the end and a dividend ratio of 50 per cent for the year.
The demand of the tobacco industry is gradually weakening, and the inventory pressure is a drag on production growth: under the influence of weak demand and other factors, there are huge inventories in the cigarette and tobacco industry. The State Tobacco Administration plans to carry out inventory control planning, in view of the fact that the demand of the industry has not improved, it is expected that cigarette production will be subject to greater negative constraints in the next few years.
Affected by the general environment, the company's food flavor business is facing a transformation: in the 15th fiscal year, the company's food flavor revenue rose 4.8 per cent year-on-year to HK $3.21 billion, while the EBIT rate fell 4.7 percentage points to 59.1 per cent compared with the same period last year. Due to the high inventory pressure in the cigarette industry, the performance of the company's tobacco flavor business is gradually weakening. It is expected that the company's food flavor business will face a growth bottleneck in the short term, and its future growth may mainly rely on food and beverage flavors.
FY15 tobacco flake revenue fell 11.6 per cent year-on-year to HK $950 million: the company's tobacco flake revenue fell 11.6 per cent to HK $950 million in fiscal 15, while the EBIT rate rose 4.7 percentage points to 44.2 per cent. As the industry still needs a long time to clean up a large number of tobacco and cigarette inventory, and the relationship between market supply and demand has been greatly alleviated, we expect that the company's tobacco flake business will face greater sales pressure in the coming period of time.
New cigarette materials have been commercialized on a small scale, and e-cigarettes are still in the promotion period: thanks to the fact that the cigarette smoke mass transfer technology platform has taken the lead in small-scale commercialization, the company's sales of new materials have reached HK $87 million. As other technology platforms are commercialized in the future, the sector is expected to maintain growth. In the fiscal year, the company launched the nicotine-free e-cigarette brand SPV (position), and in June 15 updated the second generation of SPV products, mainly luminous, car series, is expected to add more than 10 flavors, due to the launch time is still short, e-cigarette products are still in the brand promotion and channel construction period.
Downgrade the company's earnings forecast for fiscal year 16-17 by 8.8% and 12.2% to hold rating: the industry has changed dramatically, the company's main business has been negatively affected, while the size of the new business is still very small, and the company's growth is expected to face challenges in the coming years. At present, the company is in a period of adjustment and uses a large amount of cash reserves for possible mergers and acquisitions, and it is expected that future dividends may be difficult to maintain the previous high level. We are cautious about whether the industry can return to normal in the short term. We have lowered our target price to HK $5.18, which is 10.9% higher than yesterday's closing price of HK $4.67 and downgraded to hold rating. However, in the long run, given that the negative factors have been basically reflected in the stock price, if the company's business adjustment or M & A plan is completed, we are still optimistic about the company's long-term development.