Incident: The company announced its 2024 annual results. In 2024, it achieved revenue of HK$13.07 billion, +10.5% year over year; achieved gross profit of HK$1.38 billion, or +26.6% year over year; realized net profit attributable to the company's equity holders of HK$0.854 billion, +42.6% year over year, higher than the previous profit forecast. In addition, the company plans to pay a final dividend of HK$0.31 per share for the year ending December 31, 2024, together with the already paid interim dividend of HK$0.15, an increase of 43.8% over the previous year.

1. The revenue of the five major businesses continues to grow, and profitability continues to improve!

Tobacco leaf product export business: Achieved revenue of HK$2.06 billion in 2024, accounting for 15.8% of revenue, and gross margin of 4.1%, +1.3 pct year on year. Mainly due to increased demand for tobacco in the international market, the company actively organized marketable supplies while optimizing pricing strategies, and the export volume and price of tobacco leaf rose sharply.

Tobacco leaf product import business: Achieved revenue of HK$8.25 billion in 2024, accounting for 63.1% of revenue, and gross margin of 10.0%, +0.9pct year on year. This is mainly due to the increase in the share of Brazilian tobacco products with high gross margin in 2024 compared to last year and the increase in the overall sales unit price of imported tobacco leaf products compared to last year.

Cigarette export business: Achieved revenue of HK$1.57 billion in 2024, +30.2% year on year, accounting for 12.0% of revenue, gross margin of 17.6%, +4.1pct year on year. It mainly benefited from the company's active expansion of the business area and taxable business, while continuously optimizing the cigarette product portfolio and increasing the scale of its own business.

Export business of new tobacco products: Achieved revenue of HK$0.14 billion in 2024, +4.0% year on year, accounting for 1.0% of revenue, gross margin of 5.2%, +0.8 pct year on year. It mainly benefits from the increase in orders from the company's key markets and key customers, while continuously optimizing the business model and improving the pricing strategy.

Brazilian business: Achieved revenue of HK$1.05 billion in 2024, +37.0% year on year, accounting for 8.0% of revenue, gross margin of 17.5%, -0.9 pct year on year, mainly due to a sharp increase in the share of sales of finished cigarette products with higher unit prices and an increase in the unit sales price of tobacco products in Brazil.

The company proposed that in 2025, it will steadily improve its business scale, operational quality and profitability, ensure a steady increase in the amount of dividends per share, and actively seek high-quality targets in line with the company's development strategy, and carry out investment mergers and acquisitions in due course. We believe that the company is an international business development platform designated by China Tobacco Corporation and the exclusive operating entity for related trade business, and the company's various business segments are expected to continue to achieve steady, moderate and positive high-quality growth.

2. The advantages of the company's Operation model are prominent, and the scarcity is strong

Scarce advantage: China Tobacco Hong Kong has exclusive rights to operate related tobacco international businesses. According to China Tobacco Corporation Document No. 60, China Tobacco Hong Kong is the exclusive operating entity designated by China Tobacco Corporation to engage in international business development platforms and related trade business. We believe that this “exclusive position” is rare and may continue to benefit from China Tobacco's overseas expansion and equity mergers and acquisitions in the future.

Business model advantages: steady cash flow and strong bargaining power. The company relies on China Tobacco Group, and its revenue has increased steadily in recent years; at the same time, due to the current pricing policy, the gross margin of each business has less fluctuation and higher resilience to risks; the company's business model and license advantages determine that the company has strong bargaining power and good cash flow; in the future, it may acquire overseas tobacco brands and channels to enhance competitiveness.

Profit forecasting and valuation: We believe that the company relies on China Tobacco Group and has significant barriers. It is currently the only international business platform under China Tobacco. It is scarce, and is expected to be a direct beneficiary of the development and transformation of China's tobacco industry. We expect revenue of HK$15.04/17.19/19.64 billion for 25/26/27; net profit of HK$0.95/1.11/1.3 billion; the company is China Tobacco's only international business platform and maintains a “buy” rating.

Risk warning: Risk of policy changes, sales falling short of expectations, development of new tobacco products falling short of expectations, risk of mergers and acquisitions, and the company's 24-year performance has not been audited. Please refer to the company's final announcement data.