Event: the company released its annual results for 2020, with revenue of 3.854 billion yuan during the reporting period, down 9.1% from the same period last year. Affected by the loss of 495 million yuan in goodwill in the condiment sector, the company realized a net profit of 418 million yuan, down 62.4% from the same period last year. Without considering the impairment of goodwill, the net profit returned to the mother was 914 million yuan, down 17.8% from the same period last year, with a gross profit margin of 63.4%, a decrease of 1.3pct over the same period last year, and an operating profit margin of 36.3%, a decrease of 4.5 PCT over the same period last year.

1. Essence: affected by the epidemic, the performance has declined slightly. During the reporting period, the revenue of the sector reached 2.085 billion yuan, down 3.6% from the same period last year, accounting for 54.1% of the total revenue. It is still the company's largest source of revenue. The operating profit was 1.259 billion yuan, down 2.2% from the same period last year. The EBIT rate was 60.4%, and increased 0.9pct over the same period last year. Huabao is the company's main platform for operating this plate to cope with the impact of the epidemic, and the company actively promotes the adjustment of product structure: 1) in terms of edible flavors, set up a flavor microcapsule team to develop bead-shaped capsule products with various tastes. At the same time, cooperate with external organizations to develop salty flavor products used in soybean protein and leisure wet and spicy food. 2) in terms of daily flavors, focus on personal care, fabric washing, home care, perfume and fragrance, etc. Due to the successful development of new customers and the launch of new products, revenue has maintained a high growth. 3) what is worth paying attention to is that, as the leader of tobacco flavor in China, the company has begun to pay continuous attention to the development trend and business opportunities of the new type of tobacco. While deepening the relevant applied technology and product research in the field of heating and non-combustion, the smoke oil products in the field of atomized e-cigarette have also begun to achieve preliminary sales, with customers including Yueke, YOOZ and MYLE.

2. Tobacco raw materials: traditional flakes are affected by destocking, and HNB raw materials production and research application preparation company is actively engaged in the contribution of two major categories of products: recycled tobacco leaves for cigarette use and new cigarette materials. During the reporting period, the sector realized revenue of 622 million yuan, down 17.6% from the same period last year, accounting for 16.1% of the total revenue; the operating profit was 250 million yuan, down 19.8% from the same period last year; the EBIT rate was 40.2%, down 1pct from the same period last year. Among them: 1) in terms of recycled tobacco, the tobacco industry continues to consume tobacco inventory vigorously, resulting in weak demand for recycled tobacco; 2) cigarette capsules (burst beads) are the main products of new cigarette materials, and overseas sales of tobacco capsules have declined due to the influence of overseas epidemic. The company began to strengthen the production and research application of special filter rods and heating non-combustible tobacco filter rods. 3) it is noteworthy that during the reporting period, the company made progress and obtained patents in product research and process research on heating non-combustible related raw materials, at the same time, it is reserving to build factories in Southeast Asia specializing in the production of heated unburnt recycled tobacco leaves to meet market demand.

The company is the first private-funded enterprise in the industry to master the technology of recycled tobacco, has a number of technology and patent reserves in the field of HNB tobacco flakes, and cooperates with Guangdong China Tobacco. We believe that the company will benefit from the accumulation of tobacco sheet technology for traditional cigarettes and may have a first-mover advantage in areas related to raw materials for HNB.

3. Incense raw materials: H2 income recovered quickly, and bargaining power was negatively affected by the epidemic. During the reporting period, the sector achieved revenue of 639 million yuan, up 2.9% from the same period last year, accounting for 16.6% of the total revenue. The operating profit was 48 million yuan, down 41.7% from the same period last year and 7.5% from the same period last year, and 5.7pct was lower than the same period last year, mainly due to the impact of the epidemic, product structure adjustment, increased pressure on customers to reduce costs, and weakened the pricing power of incense raw material products.

4. Condiments: during the reporting period, the catering industry was greatly affected by the epidemic. During the reporting period, the revenue of the sector was 503 million yuan, down 28.2% from the same period last year, accounting for 13% of the total revenue, and the operating loss was about 431 million yuan, regardless of the impact of impairment. Operating profit is about 63 million yuan. Due to the impact of the epidemic, the revenue of the condiment sector dropped sharply in the first half of the year. As the epidemic was brought under control, Jiahao Food's performance began to recover rapidly and rebounded, with revenue of 326 million yuan in the second half of the year, basically the same as the same period last year.

Profit forecast and investment advice. As a leading enterprise of domestic flavors and fragrances, the advantages of barriers are becoming more and more prominent, and the company is expected to maintain a steady increase in revenue and profitability. At the same time, with the landing of domestic HNB policy, the company is expected to be the first to benefit from its flavor and chip business because of its leading R & D advantages and excellent product power. Based on the latest annual report, we fine-tune the company's revenue of 41.27 million yuan in 21-23 years (44.46 million yuan) and net profit of 12.36 billion yuan (14.58 million yuan) in 21-23 years, taking into account the company's advantages as a leader in domestic flavors and fragrances, and is expected to benefit from domestic HNB landing opportunities to maintain the "buy" rating.

Risk Tip: policy & International Trade risk, Market Development\ New Tobacco sector Business is not as expected