Incident: The company issued a positive profit forecast. In the first half of 2024, revenue is expected to increase by no less than 10% year over year, and profit attributable to company owners will increase by no less than 30% year over year.
The tobacco import and export business and cigarette export business are booming
Tobacco leaf export business: The company actively organizes marketable supplies and optimizes pricing strategies to increase the revenue and gross profit of the tobacco products export business;
Tobacco leaf import business: Affected by seasonal fluctuations in tobacco leaves, the number of imports of 2024H1 tobacco products increased and the unit sales price increased, resulting in an increase in the revenue and gross profit of the tobacco product import business;
Cigarette export business: Thanks to the continuous recovery of consumer traffic in duty-free shops after the epidemic, the company further optimized its cigarette product portfolio and increased the share of its own business, which greatly increased the revenue and gross profit of the cigarette export business.
Company competitive advantage: Significant barriers to exclusive operating entities, strong epitaxial expansion1. Institutional advantage: Under China's tobacco monopoly system, China Tobacco Hong Kong is an exclusive operating entity designated by China Tobacco Corporation to engage in international business development platforms and related trade business. “Exclusive status” is rare, and it may continue to benefit from China Tobacco's overseas expansion and equity mergers and acquisitions in the future.
2. Advantages of the business model: steady cash flow and strong bargaining power. The company is backed by China Tobacco Group, and its revenue has increased steadily in recent years. At the same time, due to existing pricing policies, the gross margin of various businesses fluctuates less and is more resilient to risk; the company's business model and license advantages determine that the company has strong bargaining power and good cash flow.
3. Accelerated expansion of overseas business: Since 2018, the company has successively launched a new type of tobacco export business, Brazil business, and expanded the cigarette export business beyond the company's exclusive business area, and has carried out long-term strategic cooperation with Sichuan Tobacco since April 2024 to jointly promote domestic “Great Wall” cigars in overseas markets. Profitability is expected to continue to grow.
Profit forecasting and valuation
We believe that the company relies on the China Tobacco Group and has significant barriers. It is currently China Tobacco's exclusive international business platform. It is scarce, and is expected to become a direct beneficiary of the development and transformation of China's tobacco industry. We expect the company's 24/25/26 revenue to be HK$136.36/152.77/HK$17.197 billion and net profit of HK$6.95/7.78/HK$913 million. The company is the exclusive international business platform of the China Tobacco System and maintains a “buy” rating.
Risk warning: risk of policy changes, sales falling short of expectations, development of new tobacco falling short of expectations, risk of mergers and acquisitions; the company's H1 performance in '24 has not been reviewed, please refer to the company's final announcement data