Incident: The company released its 2024 annual report, with annual revenue of 13.074 billion yuan (+10.5% YoY), net profit to mother of 0.854 billion yuan (+42.6% YoY); 24H2 achieved revenue of 4.37 billion yuan (+6.8% YoY), and net profit to mother of 0.21 billion yuan (+48.4% YoY). Revenue performance was steady. By optimizing the product & channel structure and adjusting the pricing strategy, the company's profitability improved significantly. The annual gross margin was as high as 10.5% (+1.3 pct year over year) and the 24H2 gross margin was 9.5% (+1.1 pct year over year).

The import performance of tobacco leaves was stable, the bottom of exports was repaired, and the performance of cigarettes and new types of tobacco was steady. By category:

Tobacco leaf imports: Annual revenue was 8.254 billion yuan (+2.2% year over year), of which sales volume/average price was -4.5%/+7.0% year over year; single H2 revenue was 1.452 billion yuan (-11.0% year over year), of which sales volume/average price was -28.4%/+24.4% year over year. The import volume was limited by quotas, and the performance was stable throughout the year. Among them, the share of high-priced and high-profit Brazilian tobacco leaves increased, driving the overall average price and profit improvement (24-year gross margin +0.93pct).

Tobacco leaf exports: Annual revenue was 2.062 billion yuan (+24.8% year over year), of which sales volume/average price was +18.4%/+5.4% year on year; single H2 revenue was 1.144 billion yuan (+26.3% year over year), of which sales volume/average price was +26.2%/+0.1% year over year. The bottom of overseas demand picked up, downstream procurement resumed, and the company seized opportunities, actively formed marketable supplies and adjusted pricing strategies, and volume and prices rose sharply throughout the year.

Cigarette exports: Annual revenue was 1.574 billion yuan (+30.2% year over year), of which sales volume/average price was +19.1%/+9.3% year over year; single H2 revenue was 1.026 billion yuan (+6.0% year over year), of which sales volume/average price was -0.3%/+6.3% year over year. The company successfully developed the cigar and taxable markets and continued to expand its own business scale, and is expected to maintain steady growth for 25 years.

New tobacco exports: Annual revenue was 0.135 billion yuan (+4.0% year over year), of which sales volume/average price was +12.5%/-7.6% year on year; single H2 revenue was 0.092 billion yuan (-4.6% year over year), of which sales volume/average price was +3.1%/-7.5% year over year. The company is currently focusing on brand cultivation and digging deeper into channel incremental space. In the future, along with the increase in global penetration rate, it is expected to achieve high growth.

Brazilian business: Annual revenue was 1.05 billion yuan (+37.0% year over year), of which sales volume/average price was -2.4%/+40.3% year over year; single H2 revenue was 0.656 billion yuan (+33.7% year over year), of which sales volume/average price was +7.1%/+24.9% year over year. The company actively adjusted its product structure, increasing the share of high-cost finished cigarettes, driving a sharp improvement in average price; the impact of the 24H2 high price gradually weakened, sales returned to the growth channel, and is expected to grow steadily in 25 years.

The 25-year outlook is optimistic, and endogenous and extrinsic growth can be expected. Looking ahead to 2025, the company expects to 1) continue to improve profitability and ensure a steady increase in the amount of dividends per share; 2) adhere to simultaneous promotion of endogenous epitaxial promotion and continue to focus on capital operation platform construction; 3) dynamically assess the international situation to ensure the stable supply of cost-effective and high-quality tobacco leaves and cultivate growth points in emerging markets; 4) continue to focus on cigarette brand development, optimize the product & brand matrix, and gradually expand the scope of the cigar business & taxable market; 5) continue to promote the innovation and development of new tobacco products, increase international brand awareness, and accelerate technological innovation and product iteration.

Profit forecast: The company's tobacco import and export operations are steady. Cigarettes & new types of tobacco benefit from product & channel optimization and industry structure changes, and are expected to maintain steady growth. Furthermore, as the exclusive operating entity designated by China Tobacco to engage in international business development platforms and related trade business, the company bears the heavy responsibility of capital operation. It is expected to accelerate the merger and acquisition process of high-quality products in the future, and there is plenty of momentum for long-term growth. Net profit for 2025-2027 is expected to be HK$0.97, 1.12 and 1.22 billion, respectively, and the corresponding PE is 19.5X, 16.9X, and 15.5X, respectively.

Risk warning: Global tobacco control has become stricter, procurement costs have increased, and the penetration rate of new tobacco has fallen short of expectations.