CITIC Securities released a rating report on January 31, covering China Tobacco Hong Kong for the first time and giving it a “buy” rating. According to the report, given the company's exclusive market position, high performance certainty, and scarcity of targets, it was determined that the reasonable market value of the company was approximately HK$8.7 billion and the target price was HK$13, corresponding to 15 x PE in 2024 based on the DCF model and relative valuation.
According to the research report, China Tobacco Hong Kong occupies an exclusive market position, and there are expectations of continuous expansion of its exclusive business scope, overseas mergers and acquisitions, and strategic cooperation. Currently, the company's business model is extremely stable. As China Tobacco's only listed asset, it is strategically positioned as China Tobacco's overseas capital operation and business development platform. While actively increasing the share of self-operated business revenue, it is also continuously expanding overseas business projects, providing visibility for revenue growth.
According to the research report's analysis, in the short term, China Tobacco Hong Kong will be driven by two major cornerstone businesses and three high-potential businesses, and its performance is expected to increase steadily. The two cornerstone businesses of tobacco leaf import and tobacco leaf export will contribute steadily to the company's revenue. Among the three high-potential businesses, the cigarette export business will follow the growth and recovery of overseas travel demand after the epidemic; the revenue from the export of new types of tobacco is currently small and has huge potential for development; the Brazilian tobacco business has successfully expanded the industrial chain, which is expected to increase the company's profitability while expanding the share of tobacco exports in overseas markets. In the long run, under the monopoly system, China Tobacco Hong Kong's performance is highly deterministic and growth expectations coexist. Leapfrog growth can be expected, dividend returns are expected to increase, and there is plenty of room for improvement in dividend levels.