Incident: The company released its 2019 interim results report. The company's turnover in the first half of the year reached HK$109 million; the net profit of the mother reached HK$41.102 million, an increase of 5.8% over the same period last year.
The trade business was affected by changes in customer demand. The other three traditional businesses all performed well. During the reporting period, the company's trade revenue fell 44% compared to the same period last year due to reduced demand for steel. In addition, the company's sales agency revenue reached HK$18.2 million, or 164% of the same period last year; revenue from property investment and leasing business reached HK$9.74 million, or 4.9% for the same period last year. Net profit increased 58.7% over the same period last year; revenue from health-care related business was HK$27.7 million, an increase of 33.5% over the same period last year.
Following the trend of industrial hemp development, a number of major companies were completed during the reporting period to take the lead in laying out the industrial hemp field in 2018, signed a framework agreement with Hanma Investment Group, obtained 20% of Yunnan Hansu's shares, and reached in-depth cooperation with Yunnan Hansu's parent company Hanma Group by introducing Hanma Group as a strategic shareholder and jointly investing in factories. In the first half of 2019, the company further deepened its layout on industrial hemp from the original:
① The company further acquired 5.55% of Yunnan Hansu's shares by participating in a judicial auction. The company's shares in Yunnan Hansu increased from 20% to 25.55%.
② The company plans to establish an industrial hemp holding group company - Ruima International Holdings Limited, with an investment amount of not less than HK$100 million. Currently, the company has established an Australian subsidiary within this holding group, and a Swiss subsidiary is already in the process of being established.
③ The company and Nippon Dragon Dance plan to integrate the resources and advantages of both parties in the field of CBD extraction and atomization technology to establish a joint venture in Japan, mainly engaged in the development and use of cannabinoid atomization technology such as CBD, to promote R&D, production and sales of atomizing electronic devices in the Japanese and international markets.
④ The company signed a strategic cooperation memorandum with GMP Group, a well-known Australian pharmaceutical group, and agreed to set up a joint venture in Australia in the future to engage in R&D, production and sales of cannabis health products (CBD-related products).
We believe that through the above layout, the company is expected to continue to consolidate its advantages in domestic industrial hemp processing, seize development opportunities in overseas markets through a leading overseas layout, and lay the foundation for the company to create new performance growth points in the future.
Stem cell business enhances health business competitiveness
The company acquired 45% of Shenzhen Yinguan's shares for RMB 51.1 million in February 2019. Shenzhen Yinguan is a national high-tech enterprise specializing in innovative research and development of cell and gene biotechnology, translational application research and technical services. Its cell therapy and gene editing technology are leading the way. We believe that the company can further enhance the company's business competitiveness in the field of big health through the acquisition of Shenzhen Yinguan.
Profit forecasting and investment advice
With regard to the company's current business, we expect the company's operating revenue for 2019 to be HK$224, 2.45, and 266 million; net profit of HK$103, 126 million and HK$147 million. The new industrial hemp business is expected to bring new performance increases to the company. In view of the stability of the company's traditional business, the industrial hemp business has a solid layout and is expanding rapidly, maintaining a “buy” rating.
Risk warning: Industrial hemp should be strictly distinguished from intermediate marijuana and recreational cannabis/drug marijuana; the legalization of recreational marijuana is resolutely opposed; industrial hemp-related business may involve risk of policy changes and R&D operation risks; there is uncertainty about the progress and effects of specific cooperation implementation; China has not yet approved industrial marijuana for medical use and food additives