Event: ① intends to invest no less than HK $100 million to set up an industrial marijuana holding group company-Ruima Holdings Co., Ltd. ② has signed a memorandum of understanding with Japan's Dragon Dance to set up a Japanese joint venture engaged in research and development of cannabinoids such as CBD and to subscribe for some shares in Chinese companies.
Set up the industrial marijuana holding group company, take the lead in the advantageous regional layout according to the announcement, the company intends to invest not less than 100 million Hong Kong dollars to set up the industrial marijuana holding group company-Ruima holding Co., Ltd. At present, the company has established Australian subsidiaries within the Industrial marijuana holding Group, and Swiss subsidiaries (Meilleure Hemp Health Europe SA and Green Gold HealthSA) are also in the process of being established. The company already has a good industrial base in Australia and Switzerland: in Australia, the company's health real estate project is located in the Alphington area on the outskirts of Melbourne, and it has agreed to set up a joint venture with GMP Group, a well-known Australian pharmaceutical group, to engage in the research, development, production and sales of cannabis health consumer goods (CBD related products); in Switzerland, the company focuses on Baron Hotel of Switzerland to develop customized medical travel business. The company's existing business in Australia and Switzerland established the company's local advantage and laid the foundation for the company's new business operation in the later stage.
With the signing of a memorandum of understanding with the Japanese e-cigarette company, CBD atomization application is expected to integrate the resources and advantages of both companies in the field of CBD extraction and atomization technology, and set up a joint venture company in Japan, mainly engaged in the research and development and utilization of cannabinoid atomization technology such as CBD, to promote the R & D, production and sales of atomization electronic devices in Japan and international markets. The company will hold a 51% stake in the joint venture. At the same time, the company also has the right (but no obligation) to invest 10% of Shenzhen Longwu in two rounds.
Japan has declared CBD legal since 2016. Prohibition Partners predicts that Japan's CBD market is expected to reach 800 million US dollars by 2024, and Japan and China will become the two most valuable CBD markets in Asia. Dragon dance in Japan is a leader in e-cigarette and other non-nicotine atomized products. Its e-cigarette brand Gippro entered China in early 2018 and won hundreds of thousands of users within half a year. Atomization is a new way of CBD cannabinoid intake in recent years. Together with the core enterprises in the industry, the company is expected to gain technological leadership and launch products as soon as possible to enter the fast-growing market of Japan, which is an important step in the global layout of industrial marijuana after Australia and Europe.
The advantage of the processing and extraction end lays a solid foundation for the company's product development.
Yunnan Hansu has China's first hemp processing license to meet GMP standards, can produce cannabinoids with a purity of 99 per cent, and is the largest extraction base for cannabis-based active ingredients in China. At present, the company holds 25.55% of the shares in Yunnan Hansu. In addition, Yuye Group, the controlling shareholder of Meirui, indirectly holds 5.2% of Yunnan Hansu through holding shares in Hanma Group, and the total proportion of direct and indirect shareholdings of Meirui Health reaches 30.75%. The company has gained the leading advantage of domestic industrial hemp processing and extraction by virtue of its equity in Yunnan Hansu. At the same time, the leading technology of processing and extraction has laid a solid foundation for the company's product development and resource cooperation.
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 new business of industrial marijuana is expected to bring new performance increments for the company. In view of the stability of the company's traditional business, the industrial marijuana business has a solid layout and rapid expansion, 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 and R & D operational risks; there is uncertainty about the progress and effect of specific cooperation; at present, China has never approved industrial marijuana for medical and food addition.