1H24 profit forecast was better than our expectations
The company released a profit forecast for 1H24. It is expected that 1H24 revenue will increase by no less than 10%, and net profit to mother will increase by no less than 30%. The profit forecast is better than our expectations, mainly due to the rapid growth of the company's cigarette export business and continued growth in the tobacco import business. We expect that with the rapid growth of the company's cigarette export and other businesses and the strengthening of its own alpha, 1H24's performance is expected to continue to grow rapidly in the context of a high base. We are optimistic about the uniqueness of the company's exclusive license and scarce value as an international capital operation platform under China Tobacco. It is expected that “endogenous+extension” multi-business will rise collaboratively in the medium to long term.
Key points of interest
1. Cigarette exports grew rapidly, and some imported tobacco leaves arrived in Hong Kong one after another, driving 1H24 revenue to increase by no less than 10%. Looking specifically at business, we expect: 1) Cigarette exports: According to the General Administration of Customs, in January-April, China's cigarette exports reached US$69.15 million, an increase of 31%. In the context of continuous restoration of entry/exit and duty-free shop passenger traffic after the epidemic, the cigarette export business is expected to grow faster than the industry by optimizing the cigarette product portfolio, increasing the proportion of its own business, and expanding sales channels; 2) Tobacco leaf imports are expected to grow faster than the industry; 2) Tobacco leaf imports are expected to rise rapidly in the first half of this year. Continued growth; 3) Tobacco exports : Actively optimize pricing strategies and organize marketable supplies along with the company, driving steady growth in tobacco export business.
2. The profitability of cigarette exports is expected to continue to improve, and its own Alpha will continue to stand out, supporting the year-on-year increase in profitability. The gross margin of the company's cigarette export business reached 4.8%/13.6% in 2019/2023, respectively. The company continued to increase the gross margin of the business by about 183% in 2023 compared to before the pandemic by increasing the proportion of high-margin direct supply channels and optimizing the product portfolio and structure. We expect 1H24. The gross margin of the company's cigarette export business is expected to continue to improve, driving the overall profitability increase year-on-year.
3. Exports of cigarettes and new types of tobacco are expected to continue to grow rapidly. As a scarce target with an exclusive license, “endogenous+extension” collaborative growth can be expected in the future. We expect 1) endogenous: the revenue side of the cigarette export business is expected to maintain rapid growth, and profitability is expected to continue to improve. The company also has strategic cooperation with China Tobacco in Sichuan, which is expected to export cigars and other products to new regions, which is expected to contribute to revenue growth; the tobacco import business is expected to continue growing steadily as the share of high-end products such as cigars and tobacco leaves increases; 2) Outreach: The company is expected to fully utilize its value as an international capital operation platform under China Tobacco in the future, actively explore high-quality mergers and acquisitions to enhance the synergy of the entire industry chain.
Profit forecasting and valuation
Considering the rapid growth of the company's cigarette exports and other businesses, we raised our 24/25 profit forecast by 16%/13% to HK$77/84 million. The current price corresponds to 12/11 times P/E for 24/25. Maintaining a neutral rating, the target price was raised 29% to HK$16.5 based on profit forecast adjustments and the company's cigarette export and other business operating alpha, corresponding to 15/14 times P/E in 24/25, with 20% room for growth.
risks
Risk of trade friction and exchange rate changes; risk of declining tobacco consumption.