Core ideas

In 2024, the company achieved revenue of HK$13.074 billion/ +10.5%, net profit to mother of HK$8.50.4 billion/ +42.6%, gross profit margin 10.5% /+1.3pct, and net profit margin 6.9% /+1.1pct. 24H2 achieved revenue of HK$4.37 billion/ +6.8%, net profit to mother of HKD0.21 billion/ +48.3%, gross profit margin 9.5% /+1.1 pct, and net profit margin of 5.1% /+0.7 pct. The company's basic tobacco market business is steady, continuously improving the guarantee system for high-quality tobacco leaf raw materials, and playing the role of ballast stone; the cigarette and new tobacco business is actively expanding, and the proportion of the cigarette self-operated model has increased to enhance the company's profitability. Looking at the extended cycle, the CAGR of the company's revenue and net profit to mother in 2019-2024 was 7.8% and 21.8% respectively. Revenue maintained steady growth, and profitability continued to increase. Looking forward to the future, the company adheres to the strategic position of “China Tobacco International Group's Overseas Capital Market Operation and International Business Development Platform”. Endogenous and epitaxial collaboration go hand in hand, and leapfrog development can be expected.

occurrences

The company announced its 2024 results. In 2024, the company achieved revenue of HK$13.074 billion/ +10.5%, net profit of HK$0.854 billion/ +42.6%, EPS of HKD1.23/ +42.6%. The Board recommended a final dividend of HK$0.31 per share, plus an interim dividend of HK$0.15 per share, for a total annual dividend of HK$0.46/ +43.8% per share, and a cash dividend ratio of 37.4%.

Brief review

Revenue grew steadily, and profit performance was excellent. In 2024, the company achieved revenue of HK$13.074 billion/ +10.5%, net profit of HKD0.854 billion/ +42.6%; in the second half of 2024, revenue of HKD4.37 billion/ +6.8%, and net profit of HKD0.21 billion/ +48.3% in the second half of 2024. In terms of profitability, gross profit margin of 10.5% /+1.3 pct in 2024, net profit margin 6.9% /+1.1 pct; gross profit margin of 9.5% /+1.1 pct in the second half of 2024, net profit margin 5.1% /+0.7 pct. Looking at the long-term cycle, the CAGR of the company's revenue and net profit to mother in 2019-2024 was 7.8% and 21.8% respectively. Revenue maintained steady growth, and profitability continued to increase.

The basic tobacco market business is steady, and cigarettes and new cigarettes are actively expanding.

1) Tobacco leaf import business (2024 revenue accounting for 63.1%, gross profit accounting for 59.9%):

2024 revenue HK$8.254 billion/ +7.1%, gross profit margin 10.0% /+0.9pct, import volume 0.112 millionton/ -4.5%, average import price HK$0.0737 million/ton, +6.9% year-on-year. Looking at the whole year, the increase in revenue and gross margin means that Brazilian tobacco products with high gross margin increased compared to the same period last year, and the overall sales unit price of tobacco leaves increased compared to last year. Tobacco leaf import revenue in the second half of 2024 was HK$1.452 billion/ -11.0%, gross profit margin 5.6% /-1.9pct, import volume 0.016 million tons/ -28.4%, and the average import price was HK$0.0882 million per ton, +24.4% year-on-year. The decline in 24H2 tobacco imports is mainly due to seasonal factors such as climate and shipping. Production areas such as Brazil have reduced tobacco production and increased purchase prices and sales prices. Looking forward to the future, the company will strengthen its ability to match the supply and demand of tobacco leaf resources, continue to improve the guarantee system for high-quality tobacco leaf raw materials, and play the role of ballast stone.

2) Cigarette export business (2024 revenue share 12.0%, gross profit ratio 20.1%): 2024 revenue: HK$1.574 billion/ +30.2%, gross profit margin 17.6% /+4.1pct, export volume 3.34 billions/ +19.1%, average sales price of HK$0.47 per stick, +9.3% year-on-year. Looking at the whole year, the share of self-operated cigarette businesses has increased, and taxable market business development has begun to bear fruit, driving rapid growth in revenue and gross profit. 24H2 cigarette export revenue HK$1.026 billion/ +6.0%, gross profit margin 15.2% /+2.1pct, export volume 2.23 billions/ -0.3%, average sales price of HK$0.46 per tube, +6.3% YoY. Cigarette exports grew steadily in the second half of the year, in line with inbound and outbound passenger flows.

3) Brazilian business (2024 revenue share 8.0%, gross profit share 13.3%): 2024 revenue of HKD1.05 billion/ +37.0%, gross profit margin 17.5%/-0.9pct, sales volume 0.032 million tons/ -2.4%, average sales price 0.0332 million HKD/ton, +40.3% year-on-year. 24H2 Brazil's operating revenue was HK$0.656 billion/ +33.7%, gross profit margin 17.7% /+4.0pct, sales volume 0.019 million tons/ +7.1%, average sales price was HK$0.0337 million per ton, +24.9% year-on-year. In 2024, the share of finished cigarette sales in the Brazilian business increased dramatically, leading to an increase in average sales price and a decline in gross margin. Looking forward to the future, the company will continue to focus on controlling core resources, broadening Brazilian tobacco sales channels, and improving the overall level of ESG.

4) Tobacco leaf export business (2024 revenue share 15.8%, gross profit ratio 6.1%): 2024 revenue of HKD2.062 billion/ +24.8%, gross profit margin 4.1% /+1.3pct, export volume 0.083 million tons/ +18.4%, average export price 0.0247 million HKD/ton, +5.4% year-on-year. 24H2 tobacco export revenue was HK$1.144 billion/ +26.3%, gross profit margin 4.9% /+2.2pct, export volume 0.049 million tons/ +26.2%, average export price was HK$0.0232 million/ton, +0.1% year-on-year. The company seizes the opportunity of increased demand for tobacco leaves in the international market, actively organizes marketable supplies, expands market channels, optimizes pricing strategies, enhances bargaining power on both sides of supply and demand, and promotes a significant increase in export revenue and gross margin of tobacco leaf products.

5) New tobacco export business (2024 revenue share 1.0%, gross profit ratio 0.5%): 2024 revenue: HK$0.135 billion/ +4.0%, gross profit margin 5.2% /+0.8pct, export volume 0.762 billions/ +12.5%, average export price 0.18 HKD/branch, -7.6% YoY. 24H2 new tobacco export revenue was HK$91.67 million/ -4.6%, gross profit margin 5.4% /+0.8pct, export volume 0.527 billions/ +3.1%, average export price was HK$0.17 per tube, -7.5% YoY. The company focuses on key markets, expands brand influence, and enhances profit levels.

Adhere to the strategic position of “overseas capital market operation and international business development platform”, and advance endogenous and extrinsic collaboration. Looking ahead to 2025, the company will continue to adhere to the strategic position of “China Tobacco International Group's Overseas Capital Market Operation and International Business Development Platform”, adhere to endogenous and epitaxial collaboration, continue to focus on capital operation platform construction, actively seek, screen and track high-quality targets in line with the Group's development strategy, carry out investment mergers and acquisitions in a timely manner, and strive to achieve leapfrog development.

Profit forecast: We expect China Tobacco Hong Kong's revenue for 2025-2027 to be HK$14.37, 15.68 and 17.07 billion, respectively, up 9.9%, 9.2%, and 8.8%, respectively. Net profit to mother is HK$0.951, 1.053 and 1.154 billion respectively, up 11.4%, 10.7%, and 9.6% year-on-year respectively (Note: the above profit forecast does not take into account epitaxial mergers and acquisitions). The PE corresponding to the latest market value (closing on March 10, 2025) is 17.7x, 16.0x, 14.6x, maintaining a “buy” rating.

Risk warning: 1) Overseas mergers and acquisitions have fallen short of expectations: The company is positioned as China Tobacco International Group's international business development and capital operation platform. Outreach expansion and asset integration are important strategic directions for the company. If the company successfully acquired China Tobacco Brazil in 2021, if the subsequent asset integration progress falls short of expectations, or affects the company's growth and valuation. 2) Risk of changes in the international trade environment: The company's main business is the import and export of tobacco leaves, the export of cigarettes, and the export of new types of tobacco. Due to the special nature of tobacco products, it is closely related to tax policies such as tariffs and consumption tax and government tobacco control policies. If the international trade environment or trade policy changes, it may affect the company's performance. 3) The increase in the self-employment ratio of cigarette exports or the expansion of the operating region falls short of expectations: The company actively promotes an increase in the share of self-operated cigarette export business to enhance profitability. If the self-employed ratio of cigarette exports increases or the expansion of the operating region falls short of expectations, it will affect the company's performance growth.