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中烟香港(06055.HK):中烟体系唯一烟草上市公司 资源整合市值显化空间较大

China Tobacco Hong Kong (06055.HK): The only listed tobacco company in the China Tobacco system has more room for resource integration and market capitalization

Soochow ·  Jan 17

Key investment points

Overview of China's tobacco industry: the number one market for exclusive franchises. 1) Scale: The largest tobacco leaf cultivation and tobacco product consumer market. China's tobacco production in 2021 was 2.13 million tons, accounting for 54% of Asia's production in that year, or 36% of global production. It is the largest tobacco producer. Cigarettes are the largest consumer category of tobacco products, accounting for 79% of the world's sales. China is the largest market from the consumer side, and China accounts for 45% of global cigarette sales. 2) Pattern: unified leadership, monopoly business. The National Tobacco Monopoly Administration and China Tobacco Corporation promote the continuous development of the national tobacco monopoly management system using “one agency, two brands” as an organization. The total amount of finance submitted by the Chinese tobacco industry reached the level of 1.5 trillion, and is the main contributor to consumption tax. 3) Import and export: The import and export of raw tobacco leaves are good and bad, and the export of heated tobacco is worth looking forward to. In 2023, China's tobacco imports were at the level of 2.3 billion US dollars, mainly tobacco raw materials; China's tobacco exports reached 9.2 billion US dollars, and the import and export of tobacco leaf raw materials was poor. The global scale of heated tobacco reached 34.5 billion US dollars in 2023. It is the largest category of new tobacco, and it is still growing.

China Tobacco Hong Kong: China Tobacco System's only listed tobacco business company. 1) The only listing platform for China Tobacco's import and export business. China Tobacco International undertakes the international trade related business of China Tobacco Corporation. China Tobacco Hong Kong is the only listing platform for China Tobacco International Holdings, and the main management team inherits China Tobacco International. 2) Business analysis: The import and export of tobacco leaves is the basic market. Cigarette exports and new tobacco exports can be expected. The company's revenue in 2023 was HK$11.8 billion. Of these, the five businesses of tobacco leaf import/tobacco export/cigarette export/Brazilian operation/export of new tobacco products accounted for 68%/14%/10%/6%/1%, respectively. The tobacco import and export business accounted for more than 80% of China Tobacco Hong Kong's revenue and 70% gross profit. Due to the special operating system of the Chinese tobacco industry, related transactions between China Tobacco Hong Kong and entities under China Tobacco Corporation account for about 65% of total sales. By business, the import and export volume of tobacco leaves increased steadily. The gross margin of tobacco leaf imports reached a level after 2022, and the gross margin of tobacco exports was relatively stable; the volume and price of the cigarette export business rose sharply with the restart of entry and exit; the new tobacco export business is still in its infancy, and the scale effect is gradually being unleashed. 3) There is plenty of room for the market value of China Tobacco's overseas business to be displayed. We estimate that China Tobacco Hong Kong listed companies will account for 38-48% of the country's volume of tobacco imports and cigarettes in 2023. In addition, China Tobacco invests and establishes trading companies in major tobacco production areas to develop overseas markets, and there is room for resource integration. Refer to China Tobacco Brazil's acquisition of an operating entity with a net profit of HK$0.14 billion after tax based on an assessed value of HK$0.49 billion, and integration can be expected to increase profit margins.

Profit forecast and investment rating: As the only listed company under China Tobacco International, China Tobacco's “Go Global” business platform, China Tobacco's main business, the import and export of tobacco products is developing steadily, and exports of cigarettes and new tobacco products are opening up upward flexibility, and further integration of overseas industrial chain resource space can be expected. Net profit due to mother in 2024-2026 is expected to be HK$0.81/0.93/1.02 billion, corresponding to PE 19/17/15 times. As the core target of the tobacco industry, which has a monopoly on the racetrack and still has a lot of room for resource integration in the future, it is covered by a “buy” rating for the first time.

Risk warning: Changes in countries' policies to control tobacco-related products, changes in countries' tobacco leaf cultivation and purchase and sale policies, risk of import and export trade being blocked due to geopolitics, etc.

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