Incidents:
China Tobacco Hong Kong (06055) issued a positive profit announcement on June 3, 2024: The Group expects revenue growth of no less than 10% year-on-year in the first half of 2024, and profit attributable to company owners at least 30% year-on-year.
Investment highlights:
Backed by China Tobacco Group, revenue in 2023 broke HK$10 billion for the first time. China Tobacco International (Hong Kong) Limited was established on February 26, 2004. The company is China Tobacco International's designated overseas platform responsible for capital operation and international business development. China Tobacco International is a wholly-owned subsidiary of China Tobacco Corporation. Its main products include tobacco leaves, cigarettes, and new tobacco products (such as e-cigarettes).
According to the business division, the company's business is mainly divided into import and export. Import business: purchasing tobacco products from countries or regions of origin around the world and selling them to China Tobacco International; export business: 1) selling tobacco products to overseas cigarette manufacturers; 2) exporting cigarette products to overseas duty-free shops and wholesalers; 3) selling new tobacco products (such as e-cigarettes) to global retailers and wholesalers. In 2023, the company's revenue surpassed HK$10 billion for the first time, reaching HK$11.8 billion, +42% year-on-year, and net profit to mother was HK$599 million, +60% year-on-year.
The recovery in passenger flow helped the cigarette export business grow rapidly, and the tobacco leaf import and export business all recorded growth. The Group expects revenue growth of no less than 10% year-on-year in the first half of 2024, and the year-on-year growth rate of profit for company owners is not less than 30%. The growth drivers are split as follows: 1) cigarette export business: consumer traffic at duty-free shops continued to recover after the epidemic, and the group further optimized its cigarette product portfolio to increase the proportion of its own business, which greatly increased the revenue and gross profit of the Group's cigarette export business; 2) Tobacco leaf product import business: Affected by seasonal fluctuations in tobacco leaves, the number of imports of 2024H1 tobacco products recorded a year-on-year increase compared to the same period last year, compounded by the year-on-year increase in the overall sales unit price of 2024H1. The Group recorded an increase in revenue and gross profit from the import business of tobacco products; 3) Tobacco products export business: The Group actively organized marketable supplies and optimized pricing strategies, so that the Group recorded an increase in the revenue and gross profit of the export business of tobacco leaf products.
Profit forecast and investment rating: The company is a wholly-owned subsidiary of China Tobacco Corporation. It is the exclusive international business platform of China Tobacco. It is backed by solid barriers. The company's 2024E-2026E annual revenue is HK$135/151/16.6 billion, +14%/+10% YoY; net profit to mother of HK$7.1/82/90,000,000, +18%/+15%/+12%; closing price of HK$16.60 on June 5, 2024, corresponding to 2024E-2026E PE valuation of 16.2/ 14.0/12.5X. We are optimistic that the development of the cigarette export business will bring new momentum to the company's growth. It was covered for the first time and gave it a “buy” rating.
Risk warning: risk of changes in industry regulatory policies; risk of sales and development of new tobacco falling short of expectations; seasonal risk of tobacco consumption; risk of increased market competition; risk of exchange rate fluctuations.