Event: the company released its semi-annual report 2020, and during the reporting period, operating income reached 936 million yuan, down 4.14% from the same period last year; net profit belonging to shareholders of listed companies was 546 million yuan, down 3.98% from the same period last year; and basic earnings per share was 0.89 yuan, down 3.26% from the same period last year.
Affected by the epidemic, the overall downstream demand was frustrated, Q2 improved significantly, paying attention to the landing opportunity of HNB during the 2020H1 reporting period, due to the adverse impact of COVID-19 's epidemic situation, the overall downstream market demand and product structure were adjusted, and the company's overall revenue decreased slightly. H1 Edible Flavor Plate achieved revenue of 844 million yuan, a decrease of 4.70% compared with the same period last year, and food ingredients business revenue decreased by about 8.34%. At the same time, the revenue of daily flavor business increased by 36.05%, mainly due to the better sales of disinfection and sterilization products introduced by the demand for anti-epidemic in the first half of the year. In a single quarter, 2020Q2 achieved revenue of 490 million yuan, a decrease of 7.87% over the same period last year, an increase of 10.15% compared with the same period last year, and a net profit of 277 million yuan, an increase of 0.61% over the same period last year, and an increase of 2.99% over the previous quarter. The overall operating situation of the company Q2 has been greatly improved compared with Q1. We believe that while traditional tobacco flavors are developing steadily, HNB flavors have higher technical requirements than traditional cigarette flavors, and the company has also carried out R & D layout for HNB special flavors, and we believe that the company's flavor business may continue to supply the China Tobacco Industry Company with a layout in HNB in the HNB era, linkage with overseas markets, and is expected to share the rapid development dividend of the new global tobacco industry.
Obvious advantages of R & D barriers to maintain high profitability
In terms of profitability, 2020Q2's gross profit margin on sales was 75.87%, down 1.32pct from the same period last year; the net profit margin on sales was 57.58%, an increase of 4.99pct over the same period last year. Overall, the company's profitability remains at a high level. We believe that, as the leader of domestic tobacco flavor, the company has significant advantages in technology and scale and high product barriers, which has laid the foundation for strong profitability and revenue sustainability in the medium to long term.
With the structural adjustment of cigarettes, the company is expected to develop new dividends for tobacco flavors. although the decline in tobacco sales may reduce the demand for tobacco flavors, the adjustment of cigarette sales structure and consumption upgrading have made the demand for high-quality tobacco flavors more obvious. High-end cigarettes put forward higher requirements for the quality and blending technology of tobacco flavors. Companies that produce high-quality tobacco flavors and own patented technology will share the change dividend brought about by the upgrading of cigarette consumption. On the other hand, with the improvement of the income level of Chinese residents, consumers' demand for food and beverage and daily chemical products will continue to rise, and the incremental pull of food flavor and daily chemical flavor is obvious, which has a broad market space in the long run. While the company benefits from the barrier advantage of the flavor industry and the high gross profit margin of the tobacco industry, the gross profit margin and net profit margin have been maintained at a high level, with an average of about 76% and 53% respectively in the past five years, leading the profitability industry.
Profit forecast and investment advice: we expect the company's revenue from 2020 to 2022 to be RMB 2.325 billion and net profit to be RMB 1.398 billion. Based on the company's leading advantage in the tobacco flavor industry and high gross profit margin, maintain the "buy" rating.
Risk hints: development is not as expected, policy risk, fund-raising project construction is not as expected, and new tobacco sector business is not as expected.