Company profile: positioning Great Health and developing Diversified Health Business
Meirui Health International is an international industrial group with Great Health as its main business. Before the acquisition of Yunnan Hansu, the company's business sector mainly covers health care, health tourism, healthy real estate, healthy living and other sectors. In 2018, Meirui invested 60 million yuan in Yunnan Hansu Biotechnology Co., Ltd., a subsidiary of Hanma Group, and acquired a 20% stake in Yunnan Hansu to lay out the industrial marijuana business. In the first half of 2018, the company's operating income reached HK $131 million, an increase of 93.9 per cent over the same period in 2017, while net profit reached HK $39 million, up 3.1 per cent from a year earlier.
Company advantages: close cooperation with domestic industrial hemp leading hemp group
Hanma Group is the only licensed company in China that has industrial marijuana planting license and hemp mosaic processing license and complies with China's GMP (good production practice). It carries out a comprehensive layout in the research, breeding, planting, extraction, production and sale of industrial hemp. The construction of the capacity expansion project of Hanmai in 2019 is expected to be completed in 2019, with an annual capacity of up to 3000 tons of industrial hemp, making it one of the largest known industrial marijuana extraction and processing enterprises in the world.
After Meirui acquired shares in Yunnan Hansu, the two sides signed a number of strategic cooperation agreements on expanding cannabinoid production capacity, jointly providing bio-pharmaceuticals, and jointly serving the development of the great health industry, and introduced Hong Kong Hanma Investment Group as the company's strategic shareholder. Meirui parent company Yuye Group has invested 200 million yuan in Hanma Group to become the main shareholder of Hanma Group (holding 7%). In addition, Meirui and Hanma also jointly invested in the United States industrial hemp extraction plant. The cooperation between the company and Hanma is expected to bring significant performance increment for the company, and complement each other with the company's other large health business, in line with the company's unified and healthy positioning.
Industry: more and more countries around the world have declared industrial marijuana legal. China is an important producer of industrial marijuana.
Marijuana is divided into different types according to the content of THC (tetrahydrocannabinol) in marijuana. Industrial marijuana with a THC content of less than 0.3%. The use of industrial marijuana in paper, textile, building materials, industrial oil, functional health food, cosmetics, medicine and other industries has been gradually excavated, and it is a new and competitive biological industry in recent years. Britain, the United States, South Korea and other countries gradually liberalized the rational use of industrial marijuana. The global industrial marijuana market is worth about $3.9 billion (26.4 billion yuan) in 2017 and is expected to reach $10.6 billion (71.7 billion yuan) in 2025, with a compound annual growth rate of more than 13 percent.
CBD in industrial marijuana has strong medical value. In 2020, the market size of CBD in the United States is expected to reach $2.1 billion, of which $450 million (about 3 billion yuan) comes from industrial marijuana CBD extraction, an increase of 400% over 2015.
China is one of the major producers of industrial marijuana, with an area of about 120000 mu in 2016 (compared with 60,000 mu in the United States in the same period). China is the world's largest producer of industrial hemp fiber and seeds. Of the 606 global patent applications for marijuana in 2017, 309 came from China, according to the World intellectual property Organization. In 2010, Yunnan Province issued a document issued by the Yunnan Provincial Government to make it clear that industrial marijuana is legal. At present, China's industrial marijuana planting and processing license is examined and approved by the public security organs, and there are detailed regulations on registered capital, personnel qualification, safe storage facilities and so on, so the companies that obtain the license are relatively scarce.
Profit forecast and investment suggestion
We expect the company's operating income from 2018 to 2020 to be HK $2.16,2.24 and HK $245 million, and its net profit to reach HK $0.93,1.03,126 million. In view of the fact that the company regards industrial marijuana as its future core business and has been deeply involved in the industry through the acquisition of shares in Yunnan Hansu, we expect the company to directly participate in industrial marijuana-related business in 2020 and generate HK $70.65 million in revenue. therefore, the reasonable market capitalization of the company is HK $3.5 billion, corresponding to a target price of HK $1.1.10, with a "buy" rating for the first time.
Risk hints: industrial marijuana should be strictly distinguished from intermediate marijuana and recreational marijuana / drug marijuana; firmly oppose the legalization of recreational marijuana; industrial cannabis-related business may contain policy change risks, R & D operational risks, and uncertainty of cooperation.