Event: (* unless otherwise noted, the monetary units listed in this article are in RMB. ) the company publishes its results for the year ended December 31, 2018. In 2018, the company achieved revenue of 1.146 billion yuan, an increase of 5.25% over the same period last year; gross profit of 588 million yuan and gross profit of 51.3%, down 5.4 pct from the previous year; operating profit of 285 million yuan, down 9.16% from the same period last year; and net profit of 127 million yuan, down 2.03% from the same period last year. The Board has recommended the payment of a final dividend of HK $0.034 per share for the year ended December 31, 2018 to shareholders whose names appear on the register on 22 May 2019, an increase of HK $0.004 over 2017 with the option to substitute a dividend.
The flavor business pushes through the old and brings forth the new, moves forward under pressure, and tobacco flavor enhancers are still the main source of income.
In 2018, the revenue of the company's three types of flavor business increased slightly, including tobacco flavor enhancer revenue of 603 million yuan, an increase of 2.83% over the same period last year, food flavor revenue of 144 million yuan, an increase of 4.11% over the same period last year, and daily flavor revenue of 143 million yuan, an increase of 4.69% over the same period last year. The proportion of the three in total revenue decreased slightly, to 52.56%, 12.60% and 12.47%, respectively. In terms of operating profit, tobacco flavor enhancer realized operating profit of 177 million yuan, an increase of 29.47% over the same period last year, and an operating profit margin of 29.47%, which increased by about 6pct over the previous year, which is the main source of the company's profits. This is mainly due to the company's development of new customized high-quality formulations for flavor enhancers, which enhance the ability to meet the needs of high-end products and improve the profitability of the company's products. The operating profit of food flavor was 48 million yuan, an increase of 8.28% over the same period last year, and the operating profit margin was 33.55%, an increase of about 1pct over the previous year. The company's rich innovative food flavor products enhanced customer stickiness and ability to obtain orders; the operating profit of daily flavor was 7 million yuan, down 60.36% from the same period last year, and the operating profit margin was 4.64%, which was about 8pct lower than the previous year, mainly due to the increase in cost.
The business of health care products is in a period of expansion, and revenue from new tobacco products continues to grow rapidly.
The company's health products business is mainly e-cigarettes and their accessories, including disposable e-cigarettes and rechargeable e-cigarettes. In 2018, the ministry achieved revenue of 230 million yuan, an increase of 15.27% over the same period last year, which is the main source of the company's new revenue. Its proportion in total revenue has now risen to 20.08%, an increase of about 1.5pct over the previous year; operating profit is 33 million yuan, down 57.26% from the same period last year; operating profit margin is 14.48%, which is about 14pct lower than the previous year. Since the business is mainly run by Kimree, which the company acquired in 2016, profitability and related resources may still be being integrated. At the same time, as the "wide and narrow Kungfu" smoking set of heating non-burning tobacco cooperated by Jiri and Sichuan China Tobacco has been listed in foreign markets, and the cooperation between the company and Sichuan China Tobacco is continuing to advance, we believe that the business of this department is expected to enjoy the growth dividend of China's new tobacco industry in the future.
The risk of customer income source structure is optimized, and the control ability of accounts receivable is strengthened.
In 2018, the company's customer strategy has achieved remarkable results. 1) in terms of the revenue structure of external customers, the company achieved revenue of 65 million yuan in Europe, an increase of 255.36% over the same period last year, and has now replaced the United States as the company's second largest source of revenue. In contrast, contributions from the United States, Asia, and other regions decreased by 47.18%, 35.85% and 27.51%, respectively, compared with the same period last year. We believe that the main reason is that the company has continued to reduce orders from overseas customers with low profits since 2015. focus on meeting high-end demand. This helps to disperse the company's operational risks in international trade and at the same time focus on high-net-worth customers with high quality services. 2) as of December 31, 2018, the company's fragrance enhancer division has collected more than 44% of accounts receivable from the top 10 customers, and the health products division has collected about 60%. According to the company announcement, the company is committed to strict credit controls on accounts receivable to improve the company's cash position. We believe that this may provide a better financial guarantee for the operation of the company.
Investment advice and profit Forecast
We estimate that the company's revenue from 2019 to 2021 will be 1.491 billion yuan and the net profit will be 2.21 billion yuan. Based on the company's growth path to expand the scale advantage of tobacco flavors, and take the flavor advantage to enter the fast-growing new domestic and foreign tobacco markets, maintain the "buy" rating.
Risk tips: sales are not as expected, new tobacco policy risks, international trade risks