Investment Rating - The report gives a "Recommend" rating for China Tobacco Hong Kong (6055 HK) [1][4] Core Views - China Tobacco Hong Kong is positioned as the key platform for China Tobacco's overseas expansion, with its importance significantly increasing in the context of domestic tobacco growth slowing down and the necessity of going global [1][14] - The company is transitioning from a tobacco trader to a tobacco producer, with potential for asset injections from its parent company, China Tobacco, which could drive future growth [1][4] - The global tobacco market is undergoing a transformation towards new tobacco products (e g, heated tobacco), and China Tobacco Hong Kong could leverage this trend through acquisitions and market entry strategies [1][36] Industry Analysis - China's tobacco tax revenue accounted for approximately 7% of fiscal revenue in 2023, leading to a conservative policy stance on new tobacco products domestically [1][5] - In contrast, developed markets like the US and EU have seen a decline in tobacco tax revenue as a percentage of fiscal revenue (0 5%-1%), with ESG considerations becoming a priority, leading to more favorable policies for new tobacco products [1][5] - China's strong government execution and centralized regulatory framework have resulted in stricter controls on new tobacco products compared to overseas markets [1][11] Company Analysis - China Tobacco Hong Kong's revenue and profit in 2023 were RMB 11 8 billion and RMB 600 million, respectively, with a market cap of RMB 12 1 billion as of October 16, 2024, significantly lower than global tobacco giants [1][14] - The company's current profits are largely derived from business transfers from China Tobacco, including tobacco leaf import/export and duty-free cigarette exports [1][14] - The company is expected to see revenue growth driven by its tobacco leaf import, cigarette export, and new tobacco export businesses, with projected revenue of HKD 13 58 billion, HKD 15 24 billion, and HKD 17 01 billion for 2024-2026, respectively [44][46] Valuation and Financial Projections - The report forecasts net profits of HKD 850 million, HKD 990 million, and HKD 1 152 billion for 2024-2026, with corresponding P/E ratios of 14x, 12x, and 11x, indicating significant valuation upside compared to global peers [1][4] - The company's valuation is attractive compared to global tobacco giants like Philip Morris International and Japan Tobacco, which trade at average P/E multiples of 18x, 18x, and 17x for 2024-2026 [47][48] Strategic Opportunities - China Tobacco Hong Kong could benefit from global geopolitical shifts and the "Belt and Road" initiative, providing opportunities for market entry and expansion in emerging markets [36][37] - The company is expected to accelerate its overseas expansion through acquisitions of production capacity, distribution channels, and brands, particularly in the taxed cigarette market [1][4]

Financial Performance - Revenue for the reporting period (ending June 30, 2024) reached [specific amount] with a growth rate of [specific percentage][5] - Revenue for the first half of 2024 increased by 12% to HKD 8,704,047 thousand compared to HKD 7,743,999 thousand in the same period last year[9] - Gross profit rose by 29% to HKD 964,215 thousand, driven by higher sales prices and a favorable product mix[9] - Net profit attributable to shareholders surged by 41% to HKD 643,341 thousand, with basic earnings per share increasing to HKD 0.93[9] - The company's financial summary highlights a [specific percentage] increase in net profit compared to the previous reporting period[2] - The company's cash flow statement indicates a [specific amount] in operating cash flow for the reporting period[2] - The company's equity structure shows a [specific percentage] increase in shareholder equity[2] - Revenue for the six months ended June 30, 2024, increased to HKD 8,704,047 thousand, up 12.4% from HKD 7,743,999 thousand in the same period in 2023[108] - Gross profit rose to HKD 964,215 thousand in H1 2024, a 29.4% increase compared to HKD 745,345 thousand in H1 2023[108] - Net profit attributable to equity holders of the company grew to HKD 643,341 thousand in H1 2024, up 40.8% from HKD 456,952 thousand in H1 2023[108] - Basic and diluted earnings per share increased to HKD 0.93 in H1 2024, compared to HKD 0.66 in H1 2023[108] - Total assets increased to HKD 9,211,367 thousand as of June 30, 2024, up 48.2% from HKD 6,213,612 thousand as of December 31, 2023[109] - Cash and cash equivalents grew to HKD 711,567 thousand as of June 30, 2024, a 24.7% increase from HKD 570,808 thousand as of December 31, 2023[109] - Total equity attributable to equity holders of the company increased to HKD 2,905,502 thousand as of June 30, 2024, up 16.5% from HKD 2,493,671 thousand as of December 31, 2023[110] - Retained earnings rose to HKD 1,998,563 thousand as of June 30, 2024, a 26.8% increase from HKD 1,576,560 thousand as of December 31, 2023[112] - Operating cash flow from operations decreased to 470,339 thousand HKD in 2024 from 494,428 thousand HKD in 2023[113] - Net cash from operating activities increased to 414,603 thousand HKD in 2024 from 385,993 thousand HKD in 2023[113] - Net cash used in investing activities significantly increased to 335,650 thousand HKD in 2024 from 674 thousand HKD in 2023[113] - Net cash from financing activities improved to 44,035 thousand HKD in 2024 from a net cash outflow of 6,232 thousand HKD in 2023[113] - Total customer contract revenue increased to 8,704,047 thousand HKD in 2024 from 7,743,999 thousand HKD in 2023[118] - Tobacco leaf sales revenue grew to 8,112,880 thousand HKD in 2024 from 7,469,818 thousand HKD in 2023[118] - Cigarette sales revenue more than doubled to 547,323 thousand HKD in 2024 from 240,131 thousand HKD in 2023[118] - New tobacco product sales revenue increased to 43,517 thousand HKD in 2024 from 33,895 thousand HKD in 2023[118] - Revenue from Mainland China grew to 7,256,648 thousand HKD in 2024 from 6,607,111 thousand HKD in 2023[119] - Revenue from Brazil surged to 200,339 thousand HKD in 2024 from 69,259 thousand HKD in 2023[119] - Tobacco leaf product import business revenue reached 6,802,187 thousand HKD, accounting for the largest share of total revenue at 78.1%[122] - Total revenue for the first half of 2024 was 8,704,047 thousand HKD, a 12.4% increase compared to 7,743,999 thousand HKD in the same period of 2023[122][123] - Gross profit margin for the tobacco leaf product import business was 10.9%, the highest among all business segments[122] - Cigarette export business revenue grew significantly by 127.9% year-over-year, from 240,131 thousand HKD to 547,323 thousand HKD[122][123] - Brazil operations revenue increased by 42.8% year-over-year, from 275,459 thousand HKD to 393,239 thousand HKD[122][123] - Total assets increased by 43.4% from 6,740,395 thousand HKD in 2023 to 9,665,203 thousand HKD in 2024[122][123] - Net profit for the first half of 2024 was 679,702 thousand HKD, a 33.1% increase compared to 510,540 thousand HKD in the same period of 2023[122][123] - Interest income more than doubled from 35,255 thousand HKD in 2023 to 66,549 thousand HKD in 2024[124] - Financing costs increased by 59.6% year-over-year, from 72,365 thousand HKD to 115,463 thousand HKD[126] - Inventory costs rose by 10.8% from 6,965,995 thousand HKD in 2023 to 7,715,854 thousand HKD in 2024[127] - Hong Kong profits tax provision for the six months ended June 30, 2024 was HK$82.669 million, calculated at 16.5% of estimated assessable profits, same as the previous year[128] - Overseas subsidiaries' taxes include corporate income tax and social contribution tax in Brazil, with applicable rates of 25% and 9% for the six months ended June 30, 2024 and 2023 respectively[128] - Interim dividend of HK$0.15 per share declared for the six months ended June 30, 2024, totaling HK$103.752 million, compared to none in the same period last year[129] - Basic earnings per share for the six months ended June 30, 2024 was HK$0.93, based on profit attributable to ordinary shareholders of HK$643.341 million and 691.68 million weighted average ordinary shares[130] - Trade and other receivables increased to HK$2.575 billion as of June 30, 2024 from HK$966.599 million as of December 31, 2023, with 90+ days overdue receivables significantly rising to HK$1.91 billion[132][135] - Cash and cash equivalents plus short-term bank deposits increased to HK$2.809 billion as of June 30, 2024 from HK$2.332 billion as of December 31, 2023[137] - Trade and other payables increased to HK$3.469 billion as of June 30, 2024 from HK$1.438 billion as of December 31, 2023, with 31-90 days payables rising to HK$2.291 billion[138][140] - Bank borrowings increased to HK$2.862 billion as of June 30, 2024 from HK$2.48 billion as of December 31, 2023, with a weighted average annual interest rate of 7.75%[141] - Revenue for the six months ended June 30, 2024, reached 8,704,047 thousand HKD, a 12.4% increase compared to 7,743,999 thousand HKD in the same period in 2023[149] - Gross profit for the six months ended June 30, 2024, was 964,215 thousand HKD, up 29.4% from 745,345 thousand HKD in the same period in 2023[149] - Operating profit for the six months ended June 30, 2024, was 957,779 thousand HKD, a 37.2% increase compared to 698,038 thousand HKD in the same period in 2023[149] - Profit attributable to equity holders of the company for the six months ended June 30, 2024, was 643,341 thousand HKD, up 40.8% from 456,952 thousand HKD in the same period in 2023[149] - Sales of tobacco products to a fellow subsidiary amounted to 6,802,187 thousand HKD for the six months ended June 30, 2024, compared to 6,448,079 thousand HKD in the same period in 2023[144] - Purchases of tobacco products from a fellow subsidiary totaled 1,218,803 thousand HKD for the six months ended June 30, 2024, a 54.7% increase from 787,848 thousand HKD in the same period in 2023[144] - Sales of new tobacco products to an associate of CNTC Group reached 4,835 thousand HKD for the six months ended June 30, 2024, up 64.1% from 2,946 thousand HKD in the same period in 2023[144] - Trade receivables from fellow subsidiaries stood at 1,943,078 thousand HKD as of June 30, 2024, compared to 201,057 thousand HKD as of December 31, 2023[146] - Trade payables to fellow subsidiaries amounted to 479,219 thousand HKD as of June 30, 2024, up significantly from 47,546 thousand HKD as of December 31, 2023[146] - Total remuneration for key management personnel (directors) was 5,569 thousand HKD for the six months ended June 30, 2024, slightly higher than 5,503 thousand HKD in the same period in 2023[147] Market Expansion and Acquisitions - The company completed the acquisition of China Tabaco Internacional do Brasil Ltda. (中煙巴西) in September 2021, which is expected to enhance its market presence in Brazil[3] - The company expanded its exclusive operating regions to include Thailand, Singapore, Hong Kong, Macau, and duty-free shops in mainland China[4] - The company's market expansion strategy includes potential mergers and acquisitions to strengthen its global footprint[5] - The company expanded its operations in Brazil, enhancing raw tobacco resource allocation and achieving its first supply to a multinational tobacco company[10] - The company completed the acquisition of CBT on November 26, 2021, making it a non-wholly owned subsidiary and no longer a related party[46] - The company completed the acquisition of China Tobacco Brazil on November 26, 2021, making it a wholly-owned subsidiary, with CBT becoming an indirect non-wholly-owned subsidiary[24] Strategic Agreements and Contracts - The company signed the 2021-2024 Overseas Tobacco Supply Framework Agreement, securing long-term supply contracts for tobacco products[3] - The 2021-2024 Tobacco Product Export Agency Agreement was established to strengthen the company's export agency business[3] - The company entered into an exclusive operation and long-term supply framework agreement with China Tobacco International for the import of tobacco products, with no fixed term unless terminated by the company[26] - The pricing policy for tobacco product imports is based on a 6% markup on the purchase price from suppliers, with a 3% markup for specific cigarette brand production[27] - Sales transactions under the tobacco product import framework agreement amounted to HKD 6,802.2 million, accounting for 100% of the total revenue from tobacco product import business[28] - The company entered into exclusive operation and long-term supply framework agreements with various entities under China Tobacco Corporation for the export of tobacco products, with no fixed term unless terminated by the company[29] - The company's export pricing formula for tobacco leaf products is P = A × (1 - applicable markup percentage), where P is the purchase price from domestic suppliers and A is the sales price to independent third parties[31] - Starting from January 1, 2024, the applicable markup percentages for exported tobacco leaf products are no less than 1%, 2%, and 4%, depending on product variety, annual production, sales price, customer, and supplier[32] - In the reporting period, the procurement transaction amount for tobacco leaf product export business was HKD 881.9 million, accounting for 99.1% of the total procurement amount for this business[33] - The company has entered into exclusive operation and long-term supply framework agreements with entities under China National Tobacco Corporation for duty-free cigarette export business[34] - The pricing policy for high-end and other first-class duty-free cigarettes is determined based on Document No. 250 issued by the State Tobacco Monopoly Administration, with export prices for high-end cigarettes not less than 35% of domestic ex-tax transfer prices and other first-class duty-free cigarettes not less than 45%[38] - The company applies incremental markup percentages of 1% to 2%, 2% to 5%, or above 5% for incremental business in cigarette exports, considering reasonable profit margins, market demand, and services provided by downstream wholesalers[38] - The company's cigarette export business constituted related-party transactions with a procurement amount of HKD 374.9 million, accounting for approximately 99.2% of the total procurement volume for the cigarette export business[40] - The company's new tobacco product export business had related-party procurement transactions amounting to HKD 41.4 million, representing 100% of the total procurement volume for the new tobacco product export business[44] - The company has established exclusive and long-term supply framework agreements with entities under China Tobacco Corporation for the new tobacco product export business, with no fixed expiration date unless terminated by the company[41] - The pricing formula for new tobacco product procurement is P = A × (1 - applicable markup ratio), where P is the procurement price and A is the sales price to independent third parties[43] - The markup ratio for new tobacco product export business is at least 1%, subject to adjustments based on international market conditions and operational costs[43] - The company has been granted exemptions by the Hong Kong Stock Exchange from strict compliance with annual caps and independent shareholder approval requirements for certain related-party transactions[41][44] - The company's cigarette export business applies markup ratios ranging from 1% to 2%, 2% to 5%, or above 5% for incremental business customers[39] - The company has signed 2021-2024 overseas supply framework agreements for tobacco leaf product imports, with a three-year term extendable by mutual agreement[45] - The company's procurement transactions for tobacco leaf products in the import business amounted to HKD 329.2 million, accounting for 5.0% of the total procurement in this segment[50] - The company's sales agency business for tobacco leaf products generated HKD 0.2 million in commissions, representing approximately 0.024% of the total revenue from the export business[55] - The company's pricing policy for tobacco leaf product sales includes a minimum commission rate of 0.25% for products priced at USD 20,000 or more per ton, and 0.5% for products priced below USD 20,000 per ton[53] - The expected transaction amounts under the 2021-2024 overseas supply framework agreements are HKD 444.6 million for 2022, HKD 466.9 million for 2023, and HKD 490.2 million for the period from January 1 to November 16, 2024[49] - The expected commission amounts under the 2021-2024 tobacco leaf product export agency agreements are HKD 3.0 million for 2022, HKD 3.3 million for 2023, and HKD 3.6 million for the period from January 1 to November 16, 2024[54] - The company applies a fixed markup ratio of 6% when selling tobacco leaf products to China Tobacco International, based on the procurement price[47] - The company's procurement pricing policy considers factors such as raw material costs, product quality premiums or discounts, and supplier costs related to exchange rates[48] - The company's tobacco leaf product export agency agreements have a three-year term from November 17, 2021, to November 16, 2024, with the possibility of extension[51] - The company's related parties for tobacco leaf product export agency agreements include entities such as Cambodia Vinaton Group Co., Ltd. and Myanmar Bangkang Tobacco Factory[52] - The tobacco sales framework agreement with Alliance One International has been extended until December 31, 2024, with annual transaction caps of $114.4 million (HK$892.3 million) for 2023 and $85.0 million (HK$663.2 million) for 2024[61] - The total transaction amount under the tobacco sales framework agreement during the reporting period was HK$184.0 million[62] - The CBT tobacco sales framework agreement with Alliance One International was extended until December 31, 2024, following the initial term ending on December 31, 2022[62] - The pricing for tobacco sales under the framework agreements is determined based on factors such as quantity, quality, procurement costs, and market conditions[60] - The Alliance One related transactions are considered continuing connected transactions under the Listing Rules, with certain applicable percentage ratios exceeding 5%[57] - The board of directors approved the extension of the Alliance One related transaction agreements, including the annual caps, as fair and reasonable[57] - The initial term of the tobacco sales framework agreement began on November 26, 2021, and was set to end on December 31, 2022, before being extended[58] - The CBT tobacco sales framework agreement allows CBT to sell certain grades of tobacco products to Alliance One for distribution to end customers[62] - The Alliance One related transactions include both tobacco sales and procurement of agricultural materials, tobacco, and services[56] - The extension agreements for the Alliance One related transactions are exempt from certain Listing Rules requirements, including circular and shareholder approval[57] - The transaction amount under the CBT Tobacco Sales Framework Agreement for the year ending December 31, 2023 is expected not

Investment Rating - Maintains a "Buy" rating with a target price of HKD 20.2, representing a 24% upside from the current price [1][2] Core Views - The company's revenue for the first half of 2024 reached HKD 8.7 billion, a year-on-year increase of 12.4%, with net profit of HKD 680 million, up 33% year-on-year [1] - Expected net profits for 2024/2025/2026 are HKD 900 million, HKD 970 million, and HKD 1.09 billion, respectively, with corresponding EPS of HKD 1.12, HKD 1.20, and HKD 1.34 [1][2] - The tobacco leaf import business grew by 5.5% in revenue, driven by a 4.1% price increase, while the export business grew by 23%, with a 13.1% price increase [2] - Cigarette export revenue surged by 128%, with a 96% increase in volume, reaching 1.1 billion sticks, still below pre-pandemic levels of 5.5 billion sticks annually [2] - New tobacco products saw a 28.4% revenue increase, with a 41.3% volume growth despite a 9.1% price decline [2] - The Brazilian tobacco business contributed HKD 390 million in revenue, up 42.7%, driven by a 67% price increase despite a 14.5% volume decline [2] - The company declared its first interim dividend of HKD 0.15 per share, with an expected dividend yield of 2.6% for the year [2] Financial Performance - Revenue for 2024E is projected at HKD 13.1 billion, with a 10.7% growth rate, followed by 10.0% and 10.2% growth in 2025E and 2026E, respectively [3][8] - Gross margin improved to 10.9% in H1 2024, up 1.4 percentage points year-on-year, with further improvements expected to 11.1%, 11.2%, and 11.4% in 2024E, 2025E, and 2026E [2][3] - Net profit margin is forecasted to rise to 6.9% in 2024E, up from 5.8% in 2023A, and remain stable at 6.8% in 2025E and 2026E [3][8] - ROE is expected to peak at 29.7% in 2024E before moderating to 26.1% and 24.4% in 2025E and 2026E, respectively [3][16] Valuation Analysis - Comparable company analysis suggests a 16x PE multiple for 2025E, implying a target price of HKD 19.2 [9] - DCF valuation, assuming a WACC of 10% and a long-term growth rate of 2%, yields a fair value of HKD 21.3 [9] - The blended target price of HKD 20.2 is based on a combination of comparable company and DCF valuations [9] Industry and Business Outlook - The tobacco leaf import and export businesses are in an upward cycle, benefiting from rising prices and volume growth [2] - Post-pandemic recovery in passenger traffic has driven a rebound in cigarette exports, with significant growth potential as volumes remain below pre-pandemic levels [2] - Expansion in new tobacco products and potential M&A activities are identified as future growth drivers [2] - The company's strategic focus on higher-margin self-operated businesses and new product launches is expected to sustain profitability [2]

Investment Rating - Buy (maintained) [1] Core Views - China Tobacco Hong Kong (06055) reported strong H1 2024 results with total revenue of HKD 8.7 billion, up 12.4% YoY, and net profit attributable to shareholders of HKD 640 million, up 40.8% YoY [2] - The company announced an interim dividend of HKD 0.15 per share starting from 2024 [2] - Cigarette export revenue surged 127.9% YoY to HKD 550 million, driven by recovery in duty-free market traffic [3] - Tobacco leaf import revenue increased 5.5% YoY to HKD 6.8 billion, while tobacco leaf export revenue rose 23.0% YoY to HKD 920 million [3] - New tobacco product export revenue grew 28.4% YoY to HKD 44 million, and Brazil operations revenue increased 42.8% YoY to HKD 390 million [3] - Gross margin improved to 11.1%, up 1.5 percentage points YoY, with cigarette export gross margin rising significantly to 22.2%, up 6.5 percentage points YoY [3] Financial Performance Summary - Revenue breakdown: Tobacco leaf import (HKD 6.8 billion, +5.5% YoY), tobacco leaf export (HKD 920 million, +23.0% YoY), cigarette export (HKD 550 million, +127.9% YoY), new tobacco product export (HKD 44 million, +28.4% YoY), Brazil operations (HKD 390 million, +42.8% YoY) [3] - Gross margin improvement driven by higher-margin cigarette exports and optimized product mix [3] - Net profit margin increased to 7.4%, up 1.5 percentage points YoY [3] Market Data - Current price: HKD 16.72 [4] - 52-week price range: HKD 8.61-17.88 [4] - Market capitalization: HKD 11.56 billion [4] - Average daily turnover: HKD 53.35 million [4] Forecast and Valuation - Revenue forecast for 2024E-2026E: HKD 13.4 billion (+13% YoY), HKD 14.7 billion (+10% YoY), HKD 15.9 billion (+8% YoY) [5] - Net profit forecast for 2024E-2026E: HKD 848 million (+42% YoY), HKD 969 million (+14% YoY), HKD 1.07 billion (+10% YoY) [5] - 2024E-2026E P/E ratios: 13.6x, 11.9x, 10.8x [5] - ROE expected to remain strong at around 30% from 2024E to 2026E [6] Key Drivers - Recovery in duty-free market traffic driving cigarette export growth [3] - Optimization of product mix and expansion of self-operated business scale improving margins [3] - Strong demand for tobacco leaf in international markets supporting export growth [3] - Focus on key brand cultivation and marketing efforts boosting new tobacco product sales [3]

Investment Rating - The investment rating for China Tobacco Hong Kong (06055) is "Buy" with a target price of 16.4 HKD, maintaining the rating as of August 28, 2024 [1]. Core Insights - The report highlights that China Tobacco Hong Kong achieved record performance in H1 2024, with revenue reaching 8.704 billion HKD, a year-on-year increase of 12.4%, and a net profit attributable to shareholders of 643 million HKD, up 40.8%, exceeding previous profit expectations [1]. - The company declared an interim dividend of 0.15 HKD per share for the first time [1]. - The report emphasizes the company's unique position as the only international business platform for China National Tobacco Corporation, which is expected to benefit from ongoing international expansion and potential mergers and acquisitions [1]. Summary by Sections Business Performance - The five major business segments of the company showed comprehensive growth, with notable performance in cigarette export business [1]. - Leaf export revenue in H1 2024 was 918 million HKD, up 23.0%, accounting for 10.5% of total revenue with a gross margin of 3.1% [1]. - Leaf import revenue reached 6.802 billion HKD, a 5.5% increase, representing 78.1% of total revenue with a gross margin of 10.9% [1]. - Cigarette export revenue was 547 million HKD, a significant increase of 127.9%, with a gross margin of 22.2% [1]. - New tobacco product export revenue was 44 million HKD, up 28.4%, contributing 0.5% to total revenue with a gross margin of 4.8% [1]. - Brazilian operations generated 393 million HKD in revenue, a 42.8% increase, with a gross margin of 17.2% [1]. Competitive Advantages - The company possesses a rare advantage as the exclusive operator of international tobacco business for China National Tobacco Corporation, which is expected to continue benefiting from overseas expansion and integration opportunities [1]. - The business model demonstrates strong cash flow and pricing power, supported by stable revenue growth and low volatility in gross margins [1]. - The report projects an upward revision of net profit forecasts for 2024, 2025, and 2026 to 766 million HKD, 885 million HKD, and 1.066 billion HKD respectively, reflecting the company's unique position and growth potential [1].

Financial Performance - Revenue for the six months ended June 30, 2024, was HKD 8,704,047, representing a 12% increase compared to HKD 7,743,999 for the same period in 2023[2] - Gross profit increased by 29% to HKD 964,215 from HKD 745,345 year-on-year[2] - Net profit attributable to equity holders for the period was HKD 643,341, a 41% increase from HKD 456,952 in the previous year[2] - Total comprehensive income for the period was HKD 669,530, up from HKD 517,235 in the previous year[5] - The pre-tax profit for the period was HKD 842,316 thousand, with a net profit of HKD 679,702 thousand after tax[17] - The net profit for the period was HKD 510,540,000, reflecting an increase from HKD 341,819,000 in the previous year, which is a rise of approximately 49%[21] - Net profit for the six months rose by 33% to HKD 679.7 million, compared to HKD 510.5 million in 2023[46] Dividends - The company announced an interim dividend of HKD 0.15 per share for 2024, reflecting its strong profitability and cash flow[2] - The company declared a final dividend of HKD 0.32 per share for 2023, totaling HKD 221,338,000, up from HKD 0.20 per share in 2022, which was HKD 138,336,000[27] - The board declared an interim dividend of HKD 0.15 per share for the six months ending June 30, 2024[55] Revenue Breakdown - Revenue from tobacco leaf products sales reached HKD 8,112,880 thousand, up from HKD 7,469,818 thousand, reflecting a growth of 8.7%[13] - The revenue from cigarette sales increased significantly to HKD 547,323 thousand, compared to HKD 240,131 thousand, marking a growth of 128.5%[13] - The revenue from new tobacco products was HKD 43,517 thousand, up from HKD 33,895 thousand, representing a growth of 28.4%[13] - The group's revenue from mainland China was HKD 7,256,648 thousand, an increase of 9.8% from HKD 6,607,111 thousand in the previous year[14] Costs and Expenses - Financing costs rose by 60% to HKD 115,463 from HKD 72,365 year-on-year[2] - The financing costs for the period were HKD 115,463,000, up from HKD 72,365,000 in the previous year, representing an increase of approximately 60%[24] Assets and Liabilities - Current assets increased to HKD 9,211,367 from HKD 6,213,612 as of December 31, 2023[6] - The company's net asset value as of June 30, 2024, was HKD 3,143,484, compared to HKD 2,695,292 at the end of 2023[7] - The total assets of the reportable segments amounted to HKD 9,665,203 thousand as of June 30, 2024[17] - The total liabilities of the reportable segments were HKD 6,521,719 thousand as of June 30, 2024[17] Market Expansion and Strategy - The company continues to focus on expanding its tobacco product exports to Southeast Asia, Hong Kong, Macau, Taiwan, and Europe[8] - The company is exploring potential acquisitions to strengthen its competitive position in the market[66] - Strategic initiatives are being implemented to improve operational efficiency, aiming for a 15% reduction in costs over the next year[66] - The company is expanding its market presence in the exclusive operating regions, targeting a 25% increase in market share by 2025[66] Research and Development - Research and development investments have increased by 30%, focusing on innovative technologies to enhance product offerings[66] Corporate Governance - The group has complied with all applicable code provisions of the Corporate Governance Code during the six months ending June 30, 2024[60] - The company remains committed to adhering to corporate governance standards as outlined in the Corporate Governance Code[65] Employee Costs - As of June 30, 2024, the group employed 47 staff in Hong Kong and 254 in Brazil, with total employee costs amounting to HKD 63.1 million, up from HKD 54.9 million in 2023[54]

Company and Industry Overview * **Company**: Zhongyuan Hong Kong, a publicly listed company under China Tobacco, focusing on tobacco products and international expansion. * **Industry**: Tobacco industry, with a significant global market share held by China Tobacco. * **Key Points**: * Zhongyuan Hong Kong was listed on the Hong Kong Stock Exchange in June 2019 and is the only publicly listed tobacco company under China Tobacco. * The company operates in three main segments: raw tobacco, cigarettes, and new tobacco products, with a focus on international markets. * Zhongyuan Hong Kong aims to expand its international market presence and establish a strong position in the global tobacco industry. Business Segments and Performance * **Raw Tobacco**: * Imports: Exclusively operates in non-sanctioned regions globally, with a focus on countries like Brazil, Argentina, and the United States. * Exports: Mainly operates in Southeast Asia, Hong Kong, Macau, and Taiwan, as well as Europe. * Performance: Imports increased by 27% in 2023, with revenue growing by 49% and gross profit increasing by 18%. * Challenges: Global supply shortages and fluctuating prices due to weather conditions and climate change. * **Cigarettes**: * Exports: Initially focused on two countries and three regions (Thailand, Singapore, Hong Kong, Macau, and China's domestic duty-free stores). * Performance: Revenue and gross profit increased significantly in 2023, driven by strong sales in the first half of the year and improved product pricing and increased自营比例. * Future Outlook: Continued growth expected due to the recovery of passenger traffic and increased product pricing and自营比例. * **New Tobacco Products**: * Exports: Exclusively operates in regions outside of China, with a focus on heat-not-burn products. * Performance: Revenue and gross profit increased in 2023, driven by strong demand and improved product pricing. * Future Outlook: Expected to continue growing due to increased investment and market expansion. Financial Performance and Dividends * **Revenue**: Increased by 42% in 2023, reaching over 10 billion yuan. * **Gross Profit**: Increased by 42% in 2023, reaching over 3.6 billion yuan. * **Dividends**: Increased the dividend per share by 60% to 0.32 yuan, with an additional interim dividend to be paid in 2024. Future Outlook and Strategy * **Business Growth**: Expected to continue growing in the coming years, driven by the recovery of passenger traffic, increased product pricing, and expanded market presence. * **International Expansion**: Continues to focus on expanding its international market presence and establishing a strong position in the global tobacco industry. * **Investment**: Continues to look for opportunities to acquire assets in the tobacco industry, both within and outside of China Tobacco. * **Dividends**: Expected to continue increasing dividends to provide investors with a stable and growing income stream.

Investment Rating - The report assigns a "Buy" rating to the company with a target price of HKD 20.2, compared to the current price of HKD 16.9 as of June 18, 2024 [1]. Core Insights - The company, China Tobacco Hong Kong (6055.HK), has shown strong growth in recent years, with a record revenue of HKD 11.8 billion in 2023, representing a 42% year-on-year increase, and a net profit of HKD 690 million, up 49% year-on-year [5][14]. - The growth drivers include the recovery of cigarette export business, an increase in both volume and price in tobacco leaf imports, and growth in tobacco leaf exports [20]. - The company's unique competitive advantage lies in its exclusive operating rights for tobacco imports into China and exports to Southeast Asia and regions like Hong Kong and Macau [5][23]. Company Overview - China Tobacco Hong Kong was established in 2004 and serves as the designated overseas platform for China Tobacco International, focusing on capital market operations and international business expansion [9]. - The company is primarily engaged in the import and export of tobacco leaves, cigarette exports, and new tobacco products [9]. Financial Performance - The company reported a significant increase in revenue and net profit in 2023, with revenue contributing 68.26% from tobacco leaf imports and cigarette exports being the second-largest source of profit [14][18]. - The forecast for 2024 indicates a revenue growth of at least 10% and a net profit increase of no less than 30% in the first half of the year [20]. Market Dynamics - The global tobacco production has been declining, but prices are currently in an upward cycle, influenced by factors such as climate conditions affecting supply [44]. - The company benefits from a stable demand for high-end tobacco leaves in China, with a notable increase in imports and prices over recent years [39][48]. Business Segments - The tobacco leaf import business has shown robust growth, with revenue increasing from HKD 4.63 billion in 2019 to HKD 8.08 billion in 2023, reflecting a compound annual growth rate of 14.9% [25]. - The cigarette export business is recovering post-pandemic, with potential for further growth as international travel resumes [29]. Future Outlook - The company anticipates continued growth in its new tobacco product exports, particularly in the heated not burned (HNB) market, which reached a market size of USD 34.1 billion in 2023, growing by 11.6% [5][20]. - The expected revenue for the company is projected to reach HKD 13.1 billion in 2024, HKD 14.4 billion in 2025, and HKD 15.8 billion in 2026 [5].

Investment Rating - The report assigns a "Buy" rating for the company, marking its first coverage [6]. Core Views - The report highlights a positive earnings forecast for the first half of 2024, with expected revenue growth of no less than 10% year-on-year and a profit attributable to owners growth of no less than 30% [3][4]. - The company is backed by China Tobacco Group and achieved a revenue of HKD 11.8 billion in 2023, marking a 42% year-on-year increase, with a net profit of HKD 599 million, up 60% year-on-year [4][5]. Summary by Sections Company Overview - China Tobacco Hong Kong (06055) serves as the designated overseas platform for capital operations and international business expansion for China National Tobacco Corporation [4]. - The company primarily engages in the import and export of tobacco products, including leaf tobacco and cigarettes, as well as new tobacco products like e-cigarettes [4]. Financial Performance - The company reported a significant increase in both revenue and profit in 2023, with revenue surpassing HKD 11 billion for the first time [4]. - The expected financial performance for 2024-2026 includes projected revenues of HKD 135 billion, HKD 151 billion, and HKD 166 billion, representing year-on-year growth rates of 14%, 12%, and 10% respectively [5][7]. Growth Drivers - The growth in revenue and profit is attributed to the recovery of consumer traffic in duty-free shops post-pandemic, optimization of cigarette product mix, and increased self-operated business share [4]. - The report notes that both import and export businesses for leaf tobacco products are expected to see growth due to seasonal fluctuations and improved pricing strategies [4][5]. Market Performance - As of June 5, 2024, the company's stock price was HKD 16.60, with a market capitalization of approximately HKD 11.48 billion [4]. - The company's performance significantly outpaced the Hang Seng Index over various time frames, with a 1-month increase of 38.4%, a 3-month increase of 79.7%, and a 12-month increase of 83.4% [4].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 16.1 HKD, indicating a potential upside of over 20% within the next six months [1]. Core Views - The company is expected to see significant growth in its performance, with a projected increase in profit attributable to owners of no less than 10% year-on-year for the first half of 2024, and revenue growth of at least 30% [1]. - The report highlights the positive outlook for the company's leaf import and export business, as well as its cigarette export business, which are both experiencing upward trends [1]. - The company benefits from a unique operational position as the exclusive international business platform for China National Tobacco Corporation, which is expected to continue to provide advantages in overseas expansion and mergers and acquisitions [1]. Summary by Relevant Sections Business Performance - The company is actively organizing suitable product sources and optimizing pricing strategies, leading to growth in revenue and gross profit from leaf product exports [1]. - The leaf import business has seen an increase in both volume and sales price due to seasonal fluctuations, contributing to revenue and gross profit growth [1]. - The cigarette export business has significantly increased revenue and gross profit, aided by the recovery of consumer traffic in duty-free shops post-pandemic [1]. Competitive Advantages - The company has a significant operational barrier due to its exclusive status under the tobacco monopoly system in China, which is rare and positions it well for future benefits from overseas expansion and integration [1]. - The company enjoys strong cash flow and pricing power, backed by the China Tobacco Group, with stable revenue growth and relatively low fluctuations in gross margins [1]. Financial Projections - Revenue projections for the company are estimated at 136.36 billion HKD, 152.77 billion HKD, and 171.97 billion HKD for the years 2024, 2025, and 2026 respectively, with net profits expected to be 6.95 billion HKD, 7.78 billion HKD, and 9.13 billion HKD [1].