Incident: Recently, the company announced that Luxin Packaging Resources Holdings Co., Ltd., a wholly-owned subsidiary of the company, plans to establish LUXIN HEMP GROUP INC., a wholly-owned subsidiary related to the industrial hemp business in the US.
It is proposed to establish a company in the US with the aim of expanding the company's market share in the field of industrial hemp
Luxin Packaging, a wholly-owned subsidiary of the company, plans to establish a wholly-owned subsidiary LUXIN HEMP GROUPINC in the US. (Provisional name, subject to approval by the local commercial registration authority in the United States), aims to speed up the deployment of overseas markets for industrial hemp and actively seek international cooperation, thereby expanding the company's market share in the industrial hemp field and improving the company's competitiveness. We believe that this layout is an important step for the company's industrial hemp business to participate in international market competition, which is conducive to the company's future business layout and product sales.
Global CBD (cannabidiol) production is expected to grow rapidly, and the US is an important market for legal marijuana
Industrial hemp is a native plant of the genus Cannabis with a THC content of less than 0.3% and its derived products. It has no hallucinogenic effects, which is significantly different from psychoactive recreational marijuana. Industrial hemp extract CBD has many application scenarios, such as medicine, food and beverages, cosmetics, etc., which has enriched the imagination of the industrial hemp application market. According to Bright Field Group's forecast, the value of the global CBD industry will reach 5.7 billion US dollars (about 38.1 billion yuan) in 2019 and reach 18.1 billion US dollars (about 120.9 billion yuan) by 2021. According to Euromonitor International, the global legal marijuana market was around $12 billion in 2018, with the US being the main market for marijuana, reaching $10 billion.
The company's leading layout: obtaining permission to cultivate industrial hemp and developing electronic biohealth products with Yunnan Hansu
In January 2019, the company's wholly-owned subsidiary received the “Yunnan Industrial Hemp Cultivation License” and obtained the cultivation license for industrial hemp mica No. 7. The first phase of the trial planting area was 1,000 acres. At the same time, it received approval for the application for the cannabis flower and leaf processing project.
In February 2019, Shanghai Luxin, a subsidiary of the company, signed a “Cooperation Agreement” with Yunnan Hansu and Hanma Group, which will cooperate to explore market opportunities for basic materials after industrial hemp flower leaf extraction in electronic biohealth products.
Shanghai Luxin and Yunnan Hansu plan to jointly invest in the establishment of a new company to promote the collaborative development of Shun Hao's e-cigarette and industrial hemp related businesses. We believe that Yunnan Hansu has China's first cannabis processing license that meets GMP standards and has rich industry experience. The cooperation between the two parties is conducive to leveraging their respective advantages in the field of industrial hemp and e-cigarettes, promoting the development and production of future e-biohealth products and the expansion of sales channels, which is expected to bring new performance growth points to the company.
Profit forecasting and investment advice
We expect that in 2018-20, the company's revenue will be 2,063/22.95/2,582 billion yuan; net profit of 1.04/132/164 million yuan; and EPS will be 0.15/0.19/0.23 yuan respectively. Consider that the company's tobacco packaging business is stable, has a leading layout in the industrial hemp business, and maintains an “increase in holdings” rating.
Risk warning: With the establishment of a subsidiary in the US this time, the company ensures that the US subsidiary operates in accordance with US law to avoid legal risks arising from the business process; the company may face problems such as operation management, market development, and internal control; the newly established overseas subsidiary has not yet officially completed business registration, and Luxin Packaging still needs to open an account and inject capital. There is some uncertainty about this foreign investment; industrial hemp should be strictly distinguished from intermediate marijuana, recreational cannabis/drugs, etc., and resolutely opposes the legalization of recreational marijuana; industrial-related cannabis business may include risk of policy changes, legal compliance risks, and operation management Risk, transaction risk, tax risk, natural risk, R&D operation risk, cooperation uncertainty.