Summary of China Tobacco Hong Kong Conference Call Company Overview - **Company**: China Tobacco Hong Kong - **Industry**: Tobacco Key Financial Highlights - **2024 Revenue**: HKD 13 billion, a 10% year-on-year increase [2][3] - **Gross Profit**: Increased by 26.6% to nearly HKD 1.4 billion [2][3] - **Earnings Per Share (EPS)**: Grew by 42% [2][3] - **Dividend**: Planned increase in dividend to HKD 0.46 per share, with an increase in mid-term dividend frequency [2][4][8] Business Performance and Strategy - **Post-Pandemic Export Performance**: Strong recovery in cigarette exports, particularly in Thailand, Singapore, Hong Kong, Macau, and duty-free shops in mainland China [2][5] - **Duty-Free Market Expansion**: Ongoing efforts to expand the duty-free cigar market and increase the self-operated export ratio, currently at approximately 0.5% [2][5] - **Core Business Segments**: - Bulk tobacco products (import and export) - Cigarette exports (traditional Chinese brands) - New tobacco products (limited to heated non-combustible products) [3] Regional Operations - **Brazil Operations**: Managed by China Tobacco Brazil, covering the entire supply chain from planting to sales, with 111,000 tons of tobacco imported into China in 2024, including Brazilian imports [2][6] - **Impact of US-China Tariff Policies**: Limited impact on the company, with only the tobacco import business affected; plans to import approximately 20,000 tons of tobacco from the US [2][9] Supply Chain and Quality Assurance - **Cigar Leaf Procurement**: Primarily sourced from the Dominican Republic and Zambia, with a focus on ensuring quality stability for the existing 20,000 tons of cigar leaves [2][10][11] - **Quality Control**: Current suppliers have not met quality expectations, leading to no increase in procurement volume [2][10] Market Outlook - **Tobacco Industry Growth**: Expected compound annual growth rate (CAGR) of approximately 6% over the next 3-5 years, driven by domestic demand and international market expansion [3][27] - **Long-term Growth Logic**: Based on domestic cigarette formulation needs and the cost-effectiveness of foreign tobacco [28] Challenges and Risks - **Geopolitical Factors**: Uncertainties in US tobacco exports due to geopolitical issues, with over 10,000 tons of planned exports still under internal discussion [25][26] - **Market Volatility**: Tobacco prices subject to cyclical fluctuations and climate impacts, with a stable growth expectation despite potential short-term disruptions [24] Future Developments - **Expansion Plans**: Continued focus on expanding overseas customer base and enhancing supply chain resilience [7][13] - **Innovation in Products**: Development of proprietary technologies for heated non-combustible products, with positive feedback on domestic innovations [13][15] Conclusion China Tobacco Hong Kong is positioned for steady growth with a strong financial performance and strategic expansion plans, while navigating challenges in the geopolitical landscape and ensuring quality in its supply chain.