Key points of investment
occurrences
On April 26, the company announced its 2021 quarterly report. 2021Q1, the company achieved revenue of 467 million yuan (+4.92% year-on-year), net profit of 274 million yuan (+1.91% year-on-year), and net profit of 233 million yuan after deducting non-return mother's net profit (-7.81% year-on-year).
Q1 Revenue is growing steadily and downstream demand is improving
1) 2021Q1, the company's revenue increased 4.92% year over year. Q1 Revenue growth was steady. We believe that the increase was mainly due to the recovery in demand from downstream food ingredients customers after the epidemic, the start of sales of new daily essences, and the development of new customers in North China.
2) 2021Q1, the company's net profit to the parent increased by 1.91% year-on-year. The main reasons for Guimu's net profit growth rate being lower than revenue growth rate are:
a) Gross margin - 3.93pct (to 73.81%, profit reduction of about $17 million); b) Sales expense ratio +1.34pct (to 6.37%, profit reduction of about $0.06 million), mainly due to the cancellation of social security relief after the pandemic, and an increase in business-related travel and other expenses.
The company's HNB fragrance products have been tested overseas, and the reserve technology is poised for development 1) The company's HNB technology is expected to open up 2-5 times growth space and explore the atomized tobacco essence business: The company has now developed fragrance products suitable for HNB tobacco products, forming a relevant sample bank and database. According to our estimates, the amount of fragrance used by HNB's new tobacco products in HNB products is about 6-10 times that of traditional tobacco products. If the domestic penetration rate of HNB tobacco products reaches 25%-50% in the future (according to the National Tobacco Administration, the penetration rate of Japanese HNB tobacco products in 2019 is about 23% of HNB tobacco products in 2019), As a leading domestic cigarette flavor leader, the company has benefited the most; at present, the company's HNB fragrance products have been tested overseas. If domestic HNB tobacco products are approved, the company is expected to open up 2-5 times growth space. At the same time, the company has begun to gradually lay out the domestic atomized e-cigarette field, adding atomized e-cigarette customers in 2020, such as Yuzu YOOZ, MYLE, etc., to achieve initial sales of atomized e-cigarette products, which is expected to bring about an increase in performance in the future.
2) The planned annual production capacity of about 35,000 tons supports growth: the company currently operates with an annual production capacity of 15,600 tons, including 1.27/0.19/0.10,000 tons of edible flavors/food ingredients/daily use flavors; the future plans to produce about 35,000 tons per year (22,300 tons of food ingredients, 12,700 tons of food flavors). The company continues to cultivate the food ingredients business and vigorously develop the food ingredients business.
Strong brand potential, continuous high investment in R&D
1) The core technical team is strong, and R&D investment continues to be high: Ms. Zhu Linyao, the actual controller of the company, has been involved in the fragrance industry for more than 30 years. Currently, the company has a team of first-class perfumers in the industry (89 professional perfumers, including 49 senior perfumers above the senior level) and 211 R&D technicians, which can meet the various needs of customers for fragrance products in a timely manner; the company has a nationally certified enterprise technology center that has achieved sales of tens of thousands of fragrance formulations, and has 169 patents (116 patents for inventions, 53 utility models). Laying the industry Influence; the company's R&D expenses for the full year of 2020/2021/Q1 were 154/29 million yuan respectively, accounting for 7.33%/6.27%, and investment in R&D continues to be high.
2) Strong brand potential, supporting high dividend rates and high dividend rates: The company has been deeply involved in the fragrance industry for 24 years and has brands such as Tianhong, Huabao, and Peacock. Famous customers include China Tobacco Corporation, Pepsi, Shuanghui, Qiaqia, Yanjin stores, Baicao, etc. At the same time, the company set up joint ventures with tobacco customers to deeply bind big customers. Benefiting from its solid market position, the company's dividend ratio is impressive (18/19/20 dividend payment rate reached 210%/99%/83%), and the high dividend rate is attractive (according to the closing price on April 26, the dividend rate reached 3.73%), exceeding the 10-year treasury bond yield of 3.19%, providing good medium- to long-term returns.
Investment advice
The company is a leader in the Chinese fragrance industry, with strong brand potential. HNB technology is expected to open up space for the company to grow 2-5 times, continue to invest heavily in R&D, and reserve technology is poised for development. The company's net profit for 2021-2023 is estimated to be 1,28/1281/1,344 million yuan, a growth rate of 4.07%/4.31%/4.92%. The corresponding valuation on April 26 is 21.49/20.60/19.63 times (market capitalization of 26.4 billion yuan).
Risk warning
Risk of major adjustments to dividend policies; risk of progress in implementing HNB licensing policies; risk of core technology and formulations being compromised