Huabao International is a leader in the flavor and fragrance industry, deeply ploughing China's taste consumer goods market.
Founded in 1996, the company is the leading company in China in flavor, flavor and tobacco raw materials. At present, it ranks 10th in the world and is the only Chinese company on the list.
Separate the essence and flavor raw material business to meet the needs of the development of the industry
The flavor and fragrance industry presents an oligopoly pattern, and the degree of concentration has been increasing in recent years, with the global CR10 reaching 78.9% in 2017, while the leading enterprises have significant advantages in barriers in all aspects of the industrial chain: 1) the advantages of capital and scale make the upstream flavor industry control more raw material factories and have stronger customer acquisition capacity; 2) the mid-stream flavor manufacturing industry has more R & D power to meet customer needs. 3) the trend of diversification of downstream beneficial demand can promote the development of the middle and upper reaches. After 2016, the company's flavor business continues to cultivate the food and commodity flavor sector with the advantage of barriers, while the flavor raw material business strengthens the supply strength through epitaxial acquisitions, and the relay flavor business has become a new driving force for the company's profit growth.
Forward-looking layout of tobacco raw materials, following the policy guidance and firmly seizing the great opportunities in the market
The "high aroma, low tar and low harm" required by "Chinese-style cigarette" is the optimization direction of cigarette products in China, and the selection of tobacco raw materials is the key factor for cigarette products to achieve the above requirements. Tobacco raw material business is the company's second largest segment of business, the main product tobacco sheet has a coke reduction effect, with tobacco destocking coming to an end and domestic HNB (heating not burning) policy landing opportunities, this business may welcome a new chapter of development Another main product of the company is the exploding beads that achieve "high aroma" in the new cigarette materials. "thin, medium and short explosions" has become an important force in the increase of first-class cigarette sales in our country in recent years. With the production capacity of the company's burst beads, it is expected to further improve the performance of the tobacco raw materials sector.
HNB has been in business for a long time and is a comprehensive solution provider for heating and non-combustion.
At present, the company's new tobacco products are mainly heated unburnt tobacco (HNB) tobacco flakes and special low-temperature flavors. The company is the first private enterprise in the industry to master the technology of recycled tobacco leaves. In the field of HNB tobacco flakes, the company already has a number of technology and patent reserves. We believe that the company will benefit from the accumulation of traditional cigarette tobacco flake technology and may have a first-mover advantage in HNB related fields. In addition, the technical requirements of HNB flavors are higher than those of traditional cigarettes, and the company has also carried out R & D layout for HNB special flavors. We believe that in the HNB era, the company's flavor business will continue to supply China Tobacco Industry Company with layout in HNB, link up with overseas markets, and is expected to share the rapid development dividend of the new global tobacco industry.
Acquire Jiahao Food and enter the downstream condiment market, recasting high growth potential energy
The company completed the acquisition of Jiahao Food in September 2018 and has officially entered the condiment market since then. Jiahao Food is one of the leading condiment manufacturers in China, and its products mainly include chicken juice, mustard, sauce, concentrated fruit juice and chicken powder. The main customers are catering service providers. The sector's revenue in 2015-2019 exceeded 700 million yuan, and its revenue in 2019-2019 was 10.1%. In the future, it is expected to benefit from the continuous refined and healthy consumption upgrading trend of the compound condiment industry to contribute new growth momentum to the company.
Profit forecast and investment suggestion
We believe that, as a leading enterprise of domestic flavors and fragrances, the barrier advantage is becoming more and more prominent, and the company is expected to continue to maintain a steady increase in revenue and profitability. At the same time, we believe that with the implementation of domestic HNB policy, the company benefits from its leading R & D advantages and excellent product power, and its flavor and thin chip business is expected to benefit first. We estimate that the company's 2020-2022 income will be 43.86 billion yuan. Affected by the impairment of goodwill in the condiment sector, the company's net profit in 2020-2022 will be 9.76 yuan 14.58 yuan / 1.562 billion yuan. Without considering the loss of goodwill impairment, the company's net profit in 2020-2022 will be 13.55 billion yuan 14581,562 million yuan. The corresponding EPS is 0.31 EPS 0.47 PE 0.50 respectively. Considering the company's advantages as a leader in domestic flavors and fragrances, and is expected to benefit from domestic PE landing opportunities, the company is given a "buy" rating of 25 times PE in 21 years, corresponding to a target price of 11.75 yuan (corresponding to 13.06 Hong Kong dollars, about 0.90 yuan per Hong Kong dollar).
Risk hint: market development is not as expected, policy risk, international trade risk, new tobacco sector business is not as expected.