Event: the company released its mid-2020s report. During the reporting period, the company achieved a total revenue of HK $1.885 billion, down 52.06 from the same period last year, and a net profit of HK $57 million, down 56.20% from the same period last year.
Due to the decline in short-term performance affected by the global epidemic, regardless of the company's operating barriers and competitive advantage, the company's tobacco export business achieved a sales income of 1.036 billion Hong Kong dollars (55.0% of revenue) in the first half of the year, an increase of 1.5% over the same period last year. Export volume is 38000 tons (+ 5.6%) The import business of tobacco products achieved a sales income of 794 million Hong Kong dollars (42.2% of revenue), down 63.5% from the same period last year, and the import volume was 12300 tons (- 68.6%). Mainly affected by the epidemic in South America, the acquisition and processing speed of tobacco production areas has been slowed down and delayed. Cigarette export business achieved sales revenue of 49 million Hong Kong dollars (2.6% of revenue), down 93.3% from the same period last year, and the export volume was about 2541 cases (- 92.7%), mainly affected by the global epidemic. Countries have introduced strict "immigration control measures" to prevent and control the epidemic, and the passenger volume and sales volume of duty-free shops outside customs in Thailand, Singapore, Hong Kong, Macao and China have dropped sharply. The export business of new tobacco products achieved sales revenue of 3.62 million Hong Kong dollars (0.2% of revenue), an increase of 93.2% over the same period last year, and the export volume was about 318 cases (+ 169.5%), mainly due to the company's increasing market expansion and product structure optimization.
We believe that the company is the international business development platform designated by China National Tobacco Corporation and the exclusive operating entity of related trade business. Although some of the business income affected by the epidemic has declined temporarily, with the recovery of global trade and consumption, the company's business sectors are expected to continue to steadily achieve high-quality growth, while actively seeking a two-way breakthrough in capital operation and innovation business.
The company's business model has outstanding advantages and strong scarcity.
Scarcity advantage: China Tobacco Hong Kong has the exclusive right to operate the relevant tobacco international business. According to document No. 60 of China National Tobacco Corporation, China Tobacco Hong Kong is the exclusive operating entity designated by China National Tobacco Corporation to engage in international business development platform and related trading business. We believe that this "exclusive status" is relatively rare and may continue to benefit from overseas expansion and equity mergers and acquisitions of China Tobacco in the future.
Business model advantages: steady cash flow, strong bargaining power. The company relies on China Tobacco Group, and its income has increased steadily in recent years; at the same time, due to the existing pricing policy, the gross profit margin of each business is less volatile and has higher anti-risk ability; business model and license advantages determine that the company has stronger bargaining power and better cash flow; overseas tobacco brands and channels may be acquired in the future to enhance competitiveness.
With the help of the new type of tobacco, China Tobacco Hong Kong may open a new chapter in its development.
International tobacco giants have begun to focus their research and development on the new field of tobacco, and the market scale has increased rapidly in recent years. PMI's new tobacco sector earned US $5.693 billion in 2019, accounting for 18.7% of revenue. The volume of IQOS smoke cartridges shipped reached 596.52 billion units (1.19 million cartons), an increase of 44.2% over the same period last year. At present, there are relatively few types of heated non-combustible products in China, and the domestic market is not yet open, but the development momentum is strong. At present, large and medium-sized tobacco companies accelerate the research and development of layout technology, and the products are only for overseas export; at the same time, the unique "Chinese-style flue-cured tobacco" flavor modulation technology of Chinese tobacco will also lay a good foundation for meeting the unique preferences of consumers at home and abroad.
Profit forecast and valuation
We believe that the company relies on China Tobacco Group and has significant advantages in barriers, which is the only international business platform under the flag of China Tobacco at present, and is expected to be the direct beneficiary of the development and reform of China's tobacco industry. Affected by the epidemic, we estimate that the company's annual revenue in 20-21-22 will be HK $10.46 billion, a year-on-year growth rate of-27.67%, 29.93%, 23.97% and HK $2.32, 335, 449 million, respectively. The year-on-year growth rate is-27.24%, 44.19% and 34.08%. The company is the only international business platform in China Tobacco system and is rated as "Buy".
Risk hints: policy change risk, sales below expectations, new tobacco development less than expected, M & An integration risk