On June 4, China Tobacco Hong Kong (06055.HK) rose strongly, with the intraday share price reaching HK$16.16, a new high since 2022. As of the close, the increase was 17.18%, reported at HK$16.1/share, and the market value returned to HK$10 billion. On the news front, on June 3, China Tobacco Hong Kong (06055.HK) released a positive profit forecast for the interim period of 2024, and it is expected that the group will record a revenue increase of no less than 10% and a net profit increase of no less than 30% in the six months ending June 30, 2024. China Tobacco Hong Kong is a wholly-owned subsidiary of China Tobacco. Its main products include tobacco leaves, cigarettes and new tobacco products (such as e-cigarettes). According to the business division, it can be divided into import and export. The import business is to purchase tobacco products from countries or regions of origin around the world and sell them to the parent company China Tobacco International. Export business includes: 1) selling tobacco products to overseas cigarette manufacturers; 2) exporting cigarette products to overseas duty-free shops and wholesalers; 3) and selling new tobacco products (such as e-cigarettes) to global retailers and wholesalers. 4) The company has completed the acquisition of China Tobacco Brazil and achieved vertical integration of the supply chain. In the revenue structure of China Tobacco Hong Kong, the tobacco leaf import business is the mainstay. In terms of revenue in 2023, its contribution ratio is as high as 68.26%, supporting the company's overall revenue. In the first half of this year, affected by the seasonal fluctuations of tobacco leaves, the group's import volume of tobacco leaf products increased year-on-year, and the overall sales unit price increased, which led to an increase in revenue and gross profit of tobacco leaf product import business. At the same time, during the period, China Tobacco Hong Kong organized marketable sources and optimized pricing strategies, which also led to an increase in revenue and gross profit of tobacco leaf export business. In addition, the rapid growth of cigarette exports also directly promoted the increase of the company's overall revenue and profit. Since the beginning of this year, my country's cigarette exports have maintained a growth trend against the backdrop of continued recovery in entry and exit and duty-free shop traffic after the epidemic. According to the General Administration of Customs, my country's cigarette exports reached US$69.15 million in January-April, a year-on-year increase of 31%.China Tobacco (Hong Kong) has actively seized this opportunity to further optimize its cigarette product mix, increase the proportion of self-operated business, expand sales channels, and achieve significant growth in revenue and gross profit from cigarette export business.
From the financial reports of previous years, it can be seen that the gross margin of the cigarette export business is much higher than that of tobacco leaf import and export business, and both the revenue share and gross margin have shown a continuous improvement trend. According to CICC, as the revenue share and gross margin of this business continue to increase, it is beneficial to improve the overall profitability of China Tobacco (Hong Kong).
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Let's take a look at the other two emerging businesses - new types of tobacco products and business operations in Brazil. Although the specific operational situation of these two businesses was not directly mentioned in the positive profit forecast for the mid-term of 2024, according to past financial report information, both businesses show a strong growth trend.
In particular, the business operations in Brazil have become one of the important sources of income for China Tobacco (Hong Kong). It is known that Brazil is one of the world's largest tobacco producing countries, and its tobacco market has huge potential. After China Tobacco (Hong Kong) successfully acquired China Tobacco Brazil in 2021, it achieved vertical integration of the supply chain, further enhancing its business profitability.
According to the financial report for 2023, the revenue of China Tobacco (Hong Kong)'s business operations in Brazil increased by 41.07%, and the share increased to 6.47%. Its gross margin even reached 18.41%, becoming the leader among the company's various businesses.
It can be seen that in the future, as China Tobacco (Hong Kong) deepens its layout in the Brazilian market, the business operations in Brazil are expected to become an important driving force for the growth of China Tobacco (Hong Kong)'s performance.
As for new types of tobacco products, China Tobacco (Hong Kong) has been carrying out the export business of new types of tobacco products since 2018. It is known that in order to protect consumer rights and market order, governments of various countries are strengthening the supervision of new types of tobacco products, which may suppress the development of the market, and the export business of China Tobacco (Hong Kong)'s new products will also be affected to some extent.
However, it needs to be pointed out that the business volume of China Tobacco (Hong Kong)'s new products is relatively small, and the revenue share is only slightly more than 1%. At present, the impact on the overall business structure of China Tobacco (Hong Kong) is still limited.
In short, all businesses of China Tobacco (Hong Kong) have shown a good growth momentum, which has significantly boosted its stock performance. In addition, as a tobacco enterprise with stable cash flow, China Tobacco (Hong Kong) announced in March this year to adjust the dividend policy, and will distribute mid-term dividends from 2024, which also plays a positive role in stabilizing investor confidence.
Futu Niuniu shows that since February 6 this year, the stock price of China Tobacco (Hong Kong) has started a magnificent upward journey, attracting market attention. Up to now, the stock has accumulated an increase of 88.75% in this period.