2020 results are in line with previous profit warnings
The company announced 2020 results: full-year revenue of HK$3.481 billion, down 61.2% year on year, net profit of HK$95 million, down 70.2% year on year, in line with the 65%-75% range announced by the company's previous profit warning. Mainly due to the impact of the COVID-19 pandemic, both the tobacco leaf product import business and cigarette export business experienced a sharp decline in performance.
Development trends
1. The 2H20 company's revenue declined further from the first half of the year. The company's revenue fell 61.2% year on year in 2020. Among them, 2H20 fell 68.4% year on year and 15.3% month on month, mainly affected by the further severity of the global epidemic in the second half of the year. By business: 1) The revenue of the tobacco leaf products import business fell 70.8% year on year. The core reason was the blockage of the global supply chain, the capacity dropped significantly, and the shipment of imported tobacco products was delayed, and delivery was later than previous years; 2) The revenue of the cigarette export business fell 92.7% year on year, mainly due to the impact of the epidemic. The number of people entering and leaving the world fell sharply year on year due to the impact of the epidemic. Passenger traffic to duty-free shops through the main channel of this business declined sharply, due to falling demand; 3) The main reason was that the revenue of the tobacco leaf products export business fell 10.4% year on year, which was relatively less affected by the epidemic. Thanks to increased company supply and demand The two sides made strong connections and timely adjustments to focus on key customers and provide high-quality products and services; 4) The revenue of the new tobacco products export business increased 42.8% year-on-year, of which the number of exports increased by 53.4%. The company actively explored global distribution channels and strengthened brand cooperation. Currently, the business has covered 27 countries and regions, with a total of 18 major cooperative brands, including CTOM, COO, MC, etc.
2. Profitability declined slightly. The company's gross margin fell slightly by 0.7ppt to 4.0% year-on-year in 2020, mainly because the tobacco leaf product import business and cigarette export business, which have high gross margins, were more affected by the epidemic than the other two businesses. The management fee rate increased 1.2ppt to 1.9% year over year, mainly due to a large decline in revenue. Driven by increased exchange earnings and interest income, the company's net interest rate was 2.7%, a slight decrease of 0.8 ppt over the previous year.
3. Follow the progress of the company's business recovery after the global epidemic stabilized, and the new tobacco business is also worth looking forward to. The company has responded flexibly to the COVID-19 pandemic through many means in 2020 to reduce the adverse effects of the epidemic, and the company plans to actively strengthen corporate governance, plan capital operations, and seek business innovation in the future to lay a solid foundation for post-pandemic recovery. In terms of the new tobacco business, the company gave full play to the value of China Tobacco Group's exclusive overseas operation platform, strengthened cooperation with China Tobacco's novel tobacco products in various provinces, globally recruited dealers with experience in online and offline channels, and continued to increase its market penetration. In 2020, it achieved 12 new export countries and regions. We believe that in the future, the company is expected to use channel construction as the fulcrum to leverage the growth of the new tobacco business, and the share of revenue and profit is expected to gradually increase.
Profit forecasting and valuation
The 2021 earnings per share forecast was maintained, while the 2022 earnings per share forecast of HK$0.54 was introduced. The current stock price corresponds to a price-earnings ratio of 37 times/34 times 2021/2022. Maintaining a neutral rating, based on the smooth expansion of the new tobacco business, the target price was raised by 8% to HK$17.78, corresponding to 36 times the 2021 price-earnings ratio and 33 times the 2022 price-earnings ratio. There is room for 2% decline from the current stock price.
risks
Trade frictions, risk of exchange rate changes; downside risk of tobacco consumption; recurrent overseas epidemics.