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]
中烟香港：行业景气上行，业绩量价齐升