Chiyou (603429) Company Comments: Performance Meets Expectations, Focuses on Catalysis of New Tobacco Policy

Chiyou (603429) Company Comments: Performance Meets Expectations, Focuses on Catalysis of New Tobacco Policy
Event: Chiyou shares announced the announcement of 2019 pre-increasing results. The company expects to achieve net profit attributable to mothers of about 200 million in 2019, an annual increase of 73.About 3%.Among them, non-recurring profits and losses contributed about 40 million net profits, and the company deducted non-recurring net profits1.6 billion or so, an increase of about 48 in ten years.8%.In the fourth quarter alone, it is estimated that the company’s net profit attributable to its mother will be about 99.41 million yuan, an increase of 149% every quarter; the net profit after deduction is about 66.01 million yuan, an annual increase of 68.4%. The rapid growth of cigarette label business drove high performance growth.The company’s disclosed increase in performance was mainly due to the increase in business income and receipt of government subsidies.We believe that the increase in revenue from the main business was mainly contributed by the rapid volume of cigarette label business.2019H1 company’s cigarette label business achieved revenue1.4.5 billion, accounting for 49% of revenue.8%, marking that the company has gradually formed a cigarette label + cigarette tipping paper two-wheel drive business layout.On July 27, 2019, the company announced that it had raised approximately $ 400 million through non-public offerings for the construction of new capacity for cigarette labels.According to the project plan, the new capacity is expected to bring the company’s 1.95 million large boxes of new cigarette label capacity every year after the new production capacity is reached, increasing the company’s potential for expansion in the field of cigarette labels.Consider the company’s initial reduction in the volume of cigarettes. The gross profit margin of the company in 2018 was 54.7%, the gross profit margin of the cigarette label is 33.1%), profitability is expected to pick up after capacity is gradually reached. Deploy new tobacco core technologies to create new growth points in the future.The company previously announced that it has signed research and development cooperation agreements with Jiangsu Tobacco and Chongqing Tobacco on new-type tobacco homogenization flakes.Judging from the development trajectory of new-type tobacco abroad, tobacco flakes are the core technology substitute for heating non-combustible products, and play a decisive role in the taste of the new-type tobacco.Therefore, abroad, the research and development of thin sheet technology is the core layout point for tobacco companies to promote new tobacco products.For example, international tobacco giant Philip Morris International has invested up to $ 45 billion in the research and development technology of its new tobacco flagship product IQOS.Chiyou Co., Ltd., in cooperation with Jiangsu Tobacco and Chongqing Tobacco, carried out research and development of 深圳桑拿网 homogenized wafers, marking that the company has begun to enter the new tobacco core technology field. From the medium and long-term perspective, the growth of the new tobacco industry can be recognized with higher expectations.Globally: The number of e-cigarette users in 2011 was less than 7 million, and by 2018, the number of users exceeded 40 million. Euromonitor expects that the number of users will reach 55 million in 2021, accounting for nearly 5% of the total number of smokers.US market: The United States is the most mature market for e-cigarettes worldwide, 2017 46.3 billion US dollars, accounting for 38 of the global scale.6%.There are about 9 million e-cigarette users in the United States, accounting for 16 of the total number of smokers.4%.Japanese market: Japan is the main battlefield for heating non-combustible products. The sales volume of leading products, IQOS cartridges, accounts for 15% of the tobacco market volume.2%, heating non-combustion products accounted for 24.7%, the number of IQOS equipment holders accounted for the total number of smokers exceeded the maximum.Long-term growth: Take Philip Morris International’s long-term plan for IQOS as an example. In 2025, the number of IQOS users worldwide (excluding the United States) is 40 million, and this product alone will account for 4% of the total number of smokers in the world.The volume of smoke explosions was 250 billion pieces, accounting for about 40% of the company’s total emissions.Therefore, we believe that from a global perspective, the extension and substitution of new tobacco to traditional tobacco is accelerating. If the domestic new tobacco industry can achieve a market share of 10% in the future, it means that the industry scale will reach about 150 billion (according toTobacco sales scale, source: Tobacco Monopoly Bureau). The incentive plan sets high-growth targets and demonstrates confidence in joining development.On September 26, 2019, the company announced that it obtained 6.85 million shares of ownership stock from 26 members of the core team. The exercise conditions are that the net profit for 2019-2021 is not less than 200 million / 400 million / 600 million, an increase of 73% / 100.% / 50%, showing leaders’ confidence in future performance growth. Investment suggestion: Considering that the company’s cigarette label business is expected to gradually increase in 2019-2021, we predict that the company will achieve net profit attributable to mothers in 19-21 2,3.25, 4.40,000 yuan, an increase of 73 in ten years.1%, 62.7%, 24.4%.Corresponds to EPS0.75, 1.22, 1.52 yuan.Maintain the “overweight” rating. Risk Warning: Tobacco industry policy risks, macroeconomic fluctuation risks, business expansion is not up to expectations