Event: recently, Yunnan Hansu, an associate of Meirui Health International, signed a quadripartite cooperation agreement with Shenzhen Zhuolineng Electronics Co., Ltd., Chen Jiamin and Zou Shulin, with a plan to set up a joint venture company in Shenzhen. the aim is to develop the research, development, marketing and innovative medical applications of atomized solution of industrial hemp extract (inhaled drug delivery).
The joint venture company is engaged in the atomization business of plant extract CBD. Yunnan Hansu shares in the joint venture company with intangible assets to be named Hanpu Biotechnology Co., Ltd., with a registered capital of 40 million yuan. Yunnan Hansu plans to contribute 14 million yuan in the form of capital injection proprietary technology and license, holding 35% equity, and Shenzhen Zhuolineng will contribute 20.4 million yuan in cash and hold 51% equity. Based on the atomization technology, the joint venture company will become the exclusive agent of industrial hemp extract raw materials in the field of e-cigarette and medical inhalation drug delivery, and actively explore the application and development of medical inhalation drug delivery. All parties promise that Shenzhen Zhuolineng Joint Venture Company shall achieve a sales profit of not less than RMB 20 million, 30 million, 40 million and 55 million in the second to fifth fiscal years, and Yunnan Hansu shall supply raw materials to the joint venture company, and the sales price shall be less than 15% of the other parties.
Industrial hemp has a broad market, and plant extract CBD drives the development of the industry. industrial cannabis is a crop with a cannabinoid THC (tetrahydrocannabinol) content of less than 0.3%, which is not mentally active and is significantly different from recreational marijuana. Industrial hemp is widely used in textile, health food, cosmetics, medicine and other industries, and it is a new and competitive biological industry in recent years. Among them, industrial hemp extract CBD has the efficacy of treating Parkinson's disease, epilepsy and other diseases, and has a wide range of applications in food and cosmetics. Industrial marijuana is being recognized by more and more countries. In recent years, Britain, South Korea, the United States and other countries have declared industrial marijuana legal.
Euromonitor International predicts that the global industrial marijuana market will reach $15 billion in 2023, mainly due to the growth of CBD applications. We believe that as the health value of industrial marijuana is discovered and more and more countries declare industrial marijuana legal, the market for industrial marijuana will grow rapidly, and the leading enterprises in the production and processing of industrial marijuana will stand out in the development of the industry.
Industrial hemp and electronic atomization leaders combine to actively explore overseas market Yunnan Hansu owns China's first GMP standard marijuana processing license, is China's largest monomer cannabis diphenol (CBD) and other cannabinol extraction base, its second phase of the expansion project will be completed and put into production by the end of 2019, and is expected to become one of the largest known industrial cannabis extraction and processing companies in the world. Shenzhen Zhuolineng, founded in 2009, is a high-tech enterprise engaged in the research and application of atomization technology. Its atomization technology has been used in e-cigarettes, medical devices (CBD oil atomization), low temperature non-combustion and other fields, and has maintained an average growth rate of 100% in the past three years, ranking first in the industry. We believe that Yunnan Hansu and Shenzhen Zhuolineng are the leaders in the field of industrial hemp extract CBD and electronic atomization respectively, and this cooperation is the first equity cooperation between an industrial cannabis extractor and a domestic atomizer enterprise, which is expected to give full play to their respective advantages, promote product innovation, market development, and gain a leading edge in the global booming industrial cannabis, especially in the field of CBD.
Meirui cooperates closely with Yunnan Hansu, actively arranges the industrial marijuana business with Great Health as its main business, and signed a framework agreement with Hanma Investment Group in 2018 to obtain a 20% stake in Yunnan Hansu. and through the introduction of Hanma Group as a strategic shareholder, co-investment factory and other ways to reach in-depth cooperation with Yunnan Hansu parent company Hanma Group. We believe that the cooperation between the company and Hanma Group and Yunnan Hansu is expected to bring significant performance increment for the company, and complement each other with the company's other large health business, which is in line with the company's unified and healthy positioning.
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 company's reasonable market capitalization is HK $3.5 billion, corresponding to a target price of HK $1.1.10, maintaining a "buy" rating.
Risk hints: industrial marijuana should be strictly distinguished from intermediate marijuana and recreational marijuana / drug marijuana; resolutely oppose the legalization of recreational marijuana; industrial marijuana-related business may contain policy change risks, R & D operational risks, and cooperation uncertainties; specific implementation progress and results are uncertain