Event: ① Merrill Health International and GMP Group, a well-known Australian pharmaceutical group, signed a memorandum of strategic cooperation. ② Yunnan Hansu and its controlling shareholder Hanma Investment Group Co., Ltd. entered into an investment agreement with Canadian company ACGT, in which Meirui Health International holds a 20% stake in Yunnan Hansu.
Strategic cooperation between Mei Rui Health International and GMP Group, a well-known Australian pharmaceutical group.
On April 21, 2019, Mei Rui Health Group signed a strategic cooperation memorandum with GMP Group, a well-known Australian pharmaceutical group, agreeing to set up a joint venture company in Australia in the future to engage in the research, development, production and sales of marijuana health consumer goods (CBD related products). GMP Pharmaceutical Group specializes in the research, development, production and sales of drugs, health products, dairy products and special natural skin care products. GMP's pharmaceutical factory in Auckland, New Zealand is one of the largest private contract manufacturers in New Zealand. It has established high-standard modern processing plants certified by the local government Drug Administration (TGA/Medsafe) GMP in Australia and New Zealand, respectively. GMP's Australian plant serves many customers in more than 30 countries around the world. We believe that GMP's experience in drugs and health products will help the company to further develop cannabinoid-related health products and actively move into the industrial marijuana application market.
Yunnan Hansu, an associated company, subscribed for 35% of the Canadian medical marijuana company, becoming its single largest shareholder. On April 20, 2019, Yunnan Hansu and its controlling shareholder Hanma Group signed an investment agreement with ACGT DNA Technologies Corporation, a Canadian DNA sequencing and molecular biology company. Yunnan Hansu plans to subscribe for 35% of ACGT, becoming the single largest shareholder of ACGT. The agreements between the two sides include: ① research business: the two sides will carry out in-depth cooperation in the fields of industrial marijuana seed breeding and protection, plant identification, cannabinoid extraction and purification, new drug research and development, etc. ② sales business: ACGT has the right to act as the sole agent of Hanma Group and its affiliated companies to directly or indirectly acquire, purchase or export all types of Cannabis, Hemp and any extracts or derivatives thereof in or from Canada. Hanma Group acquires, procures or imports related products into China through ACGT. We believe that Canada's industrial hemp has developed early and has a broad market, and this cooperation is conducive to the research and development of Yunnan Hansu and the company in the breeding, extraction and product of industrial hemp, and helps to further open up the Canadian market.
The industrial hemp industry is booming, and the layout of Meirui Health International is in the lead.
Industrial cannabis is a crop with less than 0.3% THC (tetrahydrocannabinol). It has no mental activity and is significantly different from recreational cannabis. 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. Meirui Health International takes the lead in the layout of industrial hemp: on the one hand, the company gains an advantage in industrial hemp processing through in-depth cooperation with Hanma Group. Yunnan Hansu has China's first GMP-compliant marijuana processing license and is one of the largest extraction bases for monomer cannabinol and other cannabis phenols in China. Meirui Health International holds a 20 per cent stake in Yunnan Hansu, which earned a profit of HK $11.5 million in 2018. In addition, the company signed an agreement with Hanma Group to jointly invest in the US industrial hemp extraction plant and is expected to become the controlling shareholder of Hansel Phase II expansion project. On the other hand, the company is gradually working on the application side. The company has completed a private offering of 360 million shares and introduced leading medical and health business experience, such as Tianshili Group, in order to actively promote the development of drugs using cannabinoids as ingredients and the clinical application of cannabinoids. The cooperation with GMP Group will help accelerate the landing of application-end products. 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 layout of industrial marijuana will stand out in the industrial development.
Profit forecast and investment suggestion
For the company's existing business, we expect its operating income from 2019 to 2021 to be HK $2.24,2.45 and HK $266 million, and its net profit to HK $1.03,1.26 and HK $147 million. The company's traditional business is stable, the industrial marijuana business has a solid layout and rapid expansion, and maintains 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 At present, China has never approved industrial marijuana for medical use and food addition, and the actual cooperation between the two sides still needs to obtain a series of licenses, permits or approvals from the relevant regulatory authorities.