Event: (*Unless otherwise specified, the currency units listed in this article are RMB.) The company issued an annual results announcement for the nine months ended December 31, 2018. During the reporting period, the company's continuous operations achieved revenue of 3,059 billion yuan, an increase of 13.06% over the previous year; operating profit of 1,288 billion yuan, an increase of 1.00% over the previous year; and Guimu's net profit was 1,018 million yuan, an increase of 21.16% over the previous year. In 2018 as a whole (data not audited), the company's continuing operations achieved revenue of 3,982 billion yuan, an increase of 15.29% over the previous year; operating profit of 1,745 billion yuan, an increase of 11.00% over the previous year; and Guimu's net profit was 1,442 million yuan, an increase of 6.98% over the previous year. The Board recommended the payment of a year-end dividend of HK$8.8 cents per share and a special dividend of HK$18.9 cents per share, totaling approximately RMB 754 million. The total dividend for the full year of 2018 could reach 37.7 cents, with an annual payout rate of 100.9%.
Fragrance sector: The product structure continues to be optimized. Listed Sun companies used a barrier advantage to ensure high profit levels. Throughout 2018, the sector's revenue was 2,149 billion yuan, down 1.68% from the previous year, and operating profit was 1,253 billion yuan, down 1.83% from the previous year. Due to the rapid development of the rest of the business segments, the revenue share of this sector in total revenue continued to decline, from 63% last year to 54% at present. The company's revenue is mainly contributed by Huabao shares of Sun Company (listed on the Shenzhen Stock Exchange during the reporting period, stock code: 300741). The fragrance products involved are still in the structural optimization stage: 1) Food flavor products, tobacco flavors increase research and development of non-flammable fragrance products to meet the market demand for non-burnable cigarettes; in terms of food flavors, by providing customized and feasible solutions to meet the needs of well-known domestic food and beverage customers; 2) Daily fragrance products, the company responds to changes in downstream market demand through the three dimensions of products, technology and services. Killing & Personal Care Essence Camp Revenue continues to grow. Based on its technological advantages, Huabao Co., Ltd. continues to maintain high profitability. In 2018, it achieved revenue of 2.69 billion yuan, down 1.3% year on year, total profit of 1,417 billion yuan, up 4.47% year on year, and Guimu's net profit was 1,176 billion yuan, up 2.41% year on year.
Tobacco raw materials: New materials for explosives have performed brilliantly. Tobacco flakes have opened up overseas markets and achieved great results. Throughout 2018, the sector's revenue was 955 million yuan, an increase of 32.04% over the previous year, and operating profit was 456 million yuan, an increase of 47.85% over the previous year. The department's performance was mainly due to the rapid increase in sales of new cigarette material products, mainly explosives. 1) In terms of new cigarette materials, the company currently accounts for about 1/3 of the explosives market share. The company is guided by consumer preferences. By improving technology to improve product quality, strengthen cooperative relationships with customers, and stabilize and increase market share to cope with the rapid entry of competitors into the market; 2) In terms of tobacco flakes, in order to further reduce flake inventories, Sun Company Guangdong Jinye implemented a “going global” strategy. During the reporting period, it has signed sales agreements with 12 overseas companies. Customers are distributed in Cambodia, Vietnam, Indonesia, Hong Kong and other countries and regions. Compared with the same period last year, the company's sheet product's overseas performance grew rapidly, providing impetus for the company to reverse the flake business.
Incense ingredients: Benefiting from industry integration opportunities, continued to expand production capacity to meet rising downstream demand. In 2018, the sector's revenue was 706 million yuan, an increase of 29.38% over the previous year, and operating profit of 118 million yuan, an increase of 7.83% over the previous year. The incense raw materials industry has a typical Matthew effect. The company benefits from industry integration opportunities brought about by environmental protection policies due to advantages such as advanced technology and strong capital. As demand for natural fragrance ingredients grew in the downstream market, the company stabilized its market position through outreach mergers and acquisitions and expansion of production capacity. Four incense ingredient subsidiaries performed well during the reporting period. Among them, Jiangxi Xianghai Phase II, which was acquired in September 2017, is already being planned.
Condiments: Acquire Jiahao Foods to open up new business markets
The company expanded its business segment through the acquisition of Jiahao Foods. In 2018 as a whole, the sector achieved revenue of 171 million yuan and operating profit of 23 million yuan. Jiahao Foods reached a licensing management agreement with Yingtan Aizhijia Foods in November 2018. Ajiya will help Jiahao increase brand awareness and increase market share.
Profit forecasting and investment advice
According to the 2018 annual report, taking into account the company's adjustment of the fiscal year ending date from March 31 to December 31 in December 18, and considering the new and cancelled business segments and the 2018 performance of Huabao Co., Ltd., we lowered the company's 2019-2021 revenue to 44.28/49.40/5.455 billion yuan (previous value of 52.05/6.104 billion yuan), and net profit was 1,885/22.03/2,545 billion yuan (previous value of 2,425.3094 billion yuan), based on the company's fragrance in China Fragrance's leading advantage and R&D strength, scale advantage and first-mover position in the fields of fragrance raw materials and tobacco raw materials, and the steady growth of the new condiment business have maintained the “buy” rating.
Risk warning: market development falls short of expectations, policy risks, international trade risks, food safety risks