Main points of investment

Event

On August 21, the company announced its mid-year report 2020. 2020H1, the company realized revenue of 936 million yuan (year-on-year-4.14%), net profit of 546 million yuan (year-on-year-3.98%), and non-return net profit of 470 million yuan (year-on-year-4.77%).

The performance of China News is steady, and the daily flavor is growing rapidly.

1) 2020H1, the company's revenue is 936 million yuan (year-on-year-4.14%), net profit is 546 million yuan (year-on-year-3.98%), gross profit / net profit is 76.76% / 59.25% (year-on-year-0.17pct/-0.16pct) By category, the company's core product food flavor achieved revenue of 844 million yuan (year-on-year-4.70%), accounting for 90.26% (year-0.53pct), gross profit margin 80.72% (year-1.06pct), food ingredients / daily flavor revenue year-on-year-3.98% consumer flavor 36.05%, food flavor is relatively robust, daily flavor growth is fast.

2) 2020Q2, the company's revenue is 490 million yuan (year-on-year-7.78%), the return net profit is 277 million yuan (year-on-year + 0.61%), the non-return net profit is 218 million yuan (year-on-year-15.42%), and the gross profit margin / net profit rate is 75.87% / 57.58% respectively (year-on-1.32pct/+4.99pct).

The company continues to develop HNB flavor products, which is expected to open 2-5 times the growth space.

1) HNB technology is expected to open 2-5 times the growth space of the company: the company has developed flavor products suitable for HNB tobacco products and formed a relevant sample database and database. according to our estimates, the use of flavors in new HNB tobacco products is about 6-10 times that of traditional tobacco. If the domestic penetration rate of HNB tobacco products reaches 25% Rue 50% in the future (according to the State Tobacco Administration, the penetration rate of Japanese HNB tobacco products in 19 years is about 23%). As the domestic tobacco flavor leader benefits most, if the domestic HNB tobacco products are licensed, it is expected to open 2-5 times the growth space. 2) the planned annual production capacity is about 33000 tons, supporting the company's growth: at present, the company has an annual operating capacity of 15600 tons, of which the annual production capacity of edible flavors / food ingredients / daily flavors is 1.27 million tons. In the future, it is planned to have an annual production capacity of about 33000 tons (22300 tons of food ingredients, 7700 tons of food flavors and 3000 tons of special medical food). We will continue to cultivate the business of edible flavors and vigorously develop the business of food flavors and ingredients.

High dividend rate and high dividend yield are attractive, and the core technical team is strong.

1) High dividend yield and high dividend yield are attractive: benefiting from a solid market position, the company has a substantial dividend yield (210% and 99% in 18 / 19), an attractive dividend yield (3.67% at the closing price on 21 March 08), and a 0.66pct premium over 3.01% of the 10-year Treasury yield, providing good medium-and long-term returns. 2) Brand power has accumulated for 24 years, with rich customer resources: the company has ploughed the flavor industry for 24 years, with Tianhong, Huabao, Peacock and other brands, well-known customers include China National Tobacco Corporation, Pepsi, Shuanghui, Jiaqia, Yanjin store, Baicao flavor and so on. At the same time, the company sets up a joint venture with tobacco customers to bind large customers deeply. 3) the core technical team is strong, paying attention to R & D and building technical barriers: Ms. Zhu Linyao, the controller of the company, has been ploughing the flavor and fragrance industry for 30 years. At present, the company has a team of first-class perfumers in the industry (72 professional perfumers. Among them, 44 are deputy senior and senior perfumers) and 192 R & D technicians, which can meet the various needs of customers for flavor products in time. The company pays attention to R & D investment, with a total of 10,000 and 154patents (113 invention patents and 41 utility model patents) recognized by the state as the enterprise technology center and 41 utility model patents), establishing the company's industry influence; the company's R & D expenditure in 2019 was 165 million yuan, accounting for 7.53%, compared with the same period last year + 9.88% 2020H1 R & D expenditure 63 million yuan, accounting for 6.73%.

Investment suggestion

The company is the leader of China's flavor industry, ploughing the flavor industry for 24 years, high dividend rate and high dividend yield are attractive, the core technical team is strong, HNB technology is expected to open 2-5 times the growth space of the company. It is estimated that the company's net return profit from 2020 to 2022 will be 1.455 billion yuan, with a growth rate of 5.09%, 5.59%, 6.12%, corresponding to a valuation of 25.61, 24.25, and 22.85 times (market capitalization, 33.3 billion yuan) on August 21.

Risk hint

Major adjustment risk of dividend policy; risk of landing schedule of HNB licensing policy; risk of loss of confidentiality of core technologies and formulations