The legendary number 1 tobacco stock China Tobacco International(HK) Company Limited, aka China Tobacco Hong Kong is on sale today, with its IPO price rising 9.63% once showing on market. China Tobacco Hong Kong as the dark horse becomes the only one to lead the rise while the overall Hong Kong stock market falls.
On its first day listing of China Tobacco Hong Kong, the opening price of this stock rose about 2%, and was way up and the rise once peaked at over 19%, and finally closed at HK$535, rising 9.63%, with a turnover of HK$1.088 billion and the latest total market value of HK$3.567 billion.
What’s more, this achievement was accomplished under the pressure of a 1.73% drop in the Hang Seng Index.
Futures Securities’s dark market data last night showed that China Tobacco Hong Kong closed at HK$5.2 and ended at HK$4.99, up 2.25% from HK$4.88, earning HK$110 per transaction. At today’s closing price, every transaction will earn HK$470.
Industry analysts believe that relying on more than 300 million smokers in the completely monopolistic business, China Tobacco has a strong bargaining power on the upstream and downstream supply chains, so that China Tobacco Hong Kong has an obvious and strong competitive advantage.
The prospectus shows that China Tobacco Hong Kong is the designated overseas platform for China Tobacco International in charge of capital operation and international business development. China Tobacco International is a wholly-owned subsidiary of China Tobacco International. It undertakes the management and operation of China Tobacco International Company by organizing trade in tobacco products, supervising the operation of overseas subsidiaries and overseas investment of China Tobacco International Company.
China Tobacco is the only entity in China that engages in the production, sale and import and export of monopoly tobacco products according to the national tobacco monopoly system.
“We are the sole operating entity in the business we are currently engaged in,” China Tobacco Hong Kong denoted when talking about its “competitive advantage” in its prospectus. “We have the strong bargaining power to suppliers, customers and sufficient cash flow.”
According to Li Yunyi, an international analyst at Anxin, China has the largest number of smokers in the world, with 306 million people in 2018 and 144.5 billion yuan in cigarette sales, accounting for 44.6% of global cigarette consumption. With the increasing disposable income of residents, the consumption of high-end tobacco products in China is increasing, which promotes the upgrading of consumption of tobacco products and optimizes the structure of the tobacco market.
Zhongtai International said that only China Tobacco Monopoly Corporation and its affiliated companies are currently eligible to monopolize the tobacco trade in China under the restrictions of the national tobacco monopoly system. Although tobacco control campaigns have been strengthened around the world in recent years, the number of smokers is huge and demand for tabacco is rigid. What’s more, the monopoly position of China Tobacco is stable, so there is no market competition in the short term.
The 28 employees generate more than 250 million yuan profits per capita, with an average annual salary of nearly one million yuan.
At present, China Tobacco Hong Kong enjoys the exclusive right to operate in four major businesses: import of tobacco products, export of tobacco products, export of cigarettes and export of new tobacco products including vapes. Although similar to the nature of the business of controlling shareholders, the business of the company still has monopoly attributes because of the separation of geographical location, .
The prospectus shows that from 2016 to 2018, China Tobacco’s revenue in Hong Kong was HK$6.610 billion, HK$7.807 billion and HK$7.033 billion respectively, while net profit in the past three years was HK$338 million, HK$348 million and HK$262 million respectively.
Although China Tobacco Hong Kong’s total revenue and net profit declined in 2018, it was disclosed that this was not due to operational problems. Among them, the decline in income is caused by the accounting treatment of related items in the import and export business of tobacco products; and the decline in net profit is due to the lower limit of cigarette price stipulated in document 250, which came into effect in 2018, resulting in the reduction of the profit margin of the cigarette export business of the company.
Analysts believe that in the future, China Tobacco Hong Kong with no competitor will usher in several times of good profits in the industry, and its performance recovery is very likely.
Surprisingly, China Tobacco Hong Kong, which had an annual income of 7.033 billion and a net profit of HK$262 million last year, had only 28 employees in Hong Kong.
According to the prospectus, by the end of 2018, China Tobacco Hong Kong had only 28 employees in Hong Kong, China, including 5 senior managers, 12 business operators, 3 human resources, 1 securities and investor relationship, 4 financials, 1 compliance and risk management, and 2 strategic and investment employees.
In terms of revenue and net profit in 2018, these 28 employees in Hong Kong earned HK$250 million per capita in mid-2018 and realized net profit of nearly HK$10 million. The total cost of employees is only about HK$25.914 million, with an average annual salary of nearly HK$1 million.
