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]
中烟香港：深度报告：未来已来，承载出海宏大叙事的烟草“国家队”