1H20 performance meets market expectations
The company announced 1H20 results: operating revenue of HK $1.885 billion, down 52.1% from the same period last year; net profit of HK $57 million, down 56.2% from the same period last year, in line with previous profit warnings, the sharp decline was mainly due to the impact on the company's business caused by the spread of the global COVID-19 epidemic.
Trend of development
1. 1H20 revenue has declined sharply, mainly affected by the spread of the global COVID-19 epidemic, among which the new type of tobacco is the bright spot of growth. 1H20's annual revenue dropped by 52.1% compared with the same period last year.
The export revenue of ① tobacco products increased by 1.5% over the same period last year, and the export volume increased by 5.6% compared with the same period last year. The company ploughed deep into key markets and customers such as Indonesia, Vietnam and Hong Kong, and reduced the impact of the epidemic by building online business processes and flexibly adjusting the progress of shipping. The revenue of ② tobacco import business decreased by 63.5%, and the import volume decreased by 68.6%, mainly due to the seasonal fluctuation of Brazilian imported tobacco products, the obstruction of international supply chain and the delay of product delivery under the epidemic. The export revenue of ③ cigarettes decreased by 93.3% compared with the same period last year, and the export volume decreased by 92.7% compared with the same period last year, mainly due to the fact that duty-free shops in Thailand, Singapore, Hong Kong and Macao closed or shortened business hours, resulting in a sharp decline in passenger flow compared with the same period last year. The export revenue of ④ 's new tobacco products increased by 93.2% over the same period last year, and the export volume increased by 169.5% compared with the same period last year. The company actively promotes the construction of a new tobacco independent brand system, optimizes product structure, increases market expansion, and strives to create a closed loop for the integration of research, production and marketing.
2. Profitability fluctuates. 1H20's gross profit margin fell 0.8ppt to 3.9% compared with the same period last year. We expect it to be mainly related to the decline in the export profitability of tobacco products under the influence of the global COVID-19 epidemic, and the decline in the proportion of imports of tobacco products with high gross profit margin and cigarette export business.
The rate of administrative expenses rose 0.6ppt to 1.4% compared with the same period last year, while financial expenses increased slightly compared with the same period last year, mainly due to the year-on-year increase in interest on leasing liabilities. Under the combined influence, the company's net interest rate was 3.0%, a slight drop of 0.3ppt compared with the same period last year.
3. The company's business is expected to resume gradually in the second half of the year, and the new tobacco business is worth looking forward to. We believe that the epidemic situation does not change the company's market position and competitive advantage as the only international business platform of China Tobacco, along with the gradual control of the epidemic at home and abroad, and the recovery of international supply chain and market demand. The company's tobacco import and export and cigarette export business are expected to pick up gradually in the second half of the year. At the same time, the global new tobacco market is growing rapidly. After IQOS has passed the MRTP certification of FDA in the United States, the penetration of heated non-combustible products in the tobacco market has been further improved. The company's active layout in this field and continuous promotion of R & D innovation and product iteration are expected to benefit from the development and transformation of the global tobacco market. In terms of extension, in the future, the company does not rule out the possibility of including similar business in CNTC under appropriate circumstances, while some of the funds raised by IPO will be used to acquire suppliers of tobacco products, cigarette brands, new tobacco products brands and other directions, which we believe is conducive to the further improvement of the company's market share.
Profit forecast and valuation
Based on the impact of the global epidemic on the company's business, we have lowered our 2020 Universe earnings forecast by 30.5% per share in 2021 to HK $0.34 / HK $0.50 per share. The current share price corresponds to a price-to-earnings ratio of 46.2 times 2021 / 31.0 times earnings in 2020. Maintain a neutral rating and lower the target price by 20.0% to HK $16.80 based on earnings forecast adjustments, corresponding to 50 times 2020 price-to-earnings ratio and 33 times 2021 price-to-earnings ratio, which has 7.8% upside compared to the current share price.
Risk.
The risk of trade friction and exchange rate change; the downward risk of tobacco consumption; the impact of the epidemic exceeded expectations.