China Tobaccos Hong Kong listing rose by more than 50percent in two days. Only 28 employees had a market value of more than 5 billion.

category:Finance
 China Tobaccos Hong Kong listing rose by more than 50percent in two days. Only 28 employees had a market value of more than 5 billion.


In this issue, CITIC Hong Kong received about 29,000 public subscription applications, nearly 100 times over subscription. Investorsenthusiasm also made the share price of CITIC Hong Kong soar.

On the day of listing, CITIC Hong Kongs opening share price rose 1.84%, to HK$4.97, and closed at HK$5.35, up 9.63%. On the 13th, China Tobacco Hong Kongs share price continued to rise, expanding to 40.93%, closing at HK$7.54 per share. After two days of listing, its share price rose by more than 50% and its market value reached 5.027 billion yuan.

The 28 employees earned more than 250 million Hong Kong dollars per capita.

Founded in 2004, China Tobacco Hong Kong is the designated offshore 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 Corporation, which undertakes the management and operation of the latters international business.

China Tobacco Corporation is the only entity engaged in the production, sale and import and export of tobacco monopoly products according to the national tobacco monopoly system, with a total tax and profit exceeding trillion yuan for three consecutive years. According to the data released by the State Tobacco Monopoly Bureau, the total tax and profit realized by China National Tobacco Corporation from 2015 to 2018 are 1143.6 billion yuan, 1079.5 billion yuan, 1114.5 billion yuan and 115.56 billion yuan, respectively.

Backed by China Tobacco, from 2016 to 2018, China Tobacco Hong Kongs revenue was HK$6.611 billion, HK$7.807 billion and HK$7.032 billion respectively, while its net profit was HK$338 million, HK$348 million and HK$261 million, respectively.

Although China Tobacco Hong Kongs 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.

However, despite the exclusive right to import and export tobacco products, China Tobacco Hong Kongs gross profit rate is not as high as expected, and is declining. From 2015 to 2018, China Tobacco Hong Kong gross interest rates were 7.4%, 7.7%, 6.3% and 3.7%, respectively.

China Tobacco Hong Kong explained that this was related to its highly dependent business model on Chinese tobacco. Among them, all sales counterparties in the import business of the former and procurement counterparties in the export business must be the entities of the latter.

In addition, the purchase and sale of CITIC Hong Kong and its affiliates are subject to the government pricing system stipulated in the relevant documents.

Take the import business of tobacco products, the main source of income of CITIC Hong Kong, as an example. At present, China Tobacco Hong Kong has increased its price by 6% on the basis of the purchasing price of suppliers and 3% on some tobacco products imported for the manufacture of specific cigarette brands before selling them to related parties in China. As a result, the gross profit rate of the business from 2016 to 2018 is only 4.3%, 4.9% and 5.1% respectively.

Interestingly, the prospectus shows that by the end of 2018, CITIC Hong Kong had only 28 employees in Hong Kong. The total cost of its employees was about HK$25.914 million, with an average annual salary of nearly HK$1 million. In 2018, China Tobacco Hong Kongs income was about HK$7.033 billion and its net profit was HK$262 million, which meant that its per capita annual income was more than HK$250 million and its net profit per capita was nearly 10 million yuan.

Stock prices rose more than 50% in the two days of listing.

As the first tobacco share in the Hong Kong stock market and backed by China National Tobacco Corporation, CITIC Hong Kong has gained great popularity among investors.

The results show that the company has sold about 167 million shares worldwide, of which 16.668 million shares are sold in Hong Kong, 10% are sold in international markets, and about 150 million shares are sold in Hong Kong, 90% are sold in international markets. Another 15% are over-quota shares. The price of each share is set at HK$488, which is at the high end of the previous offering range from HK$388 to HK$488, with a net capital raising of HK$735 million. In the previous stage of public offering, CITIC Hong Kong was popular with investors, and received about 29,000 public subscription applications, 102.04 times more than the oversubscription.

On the day of listing, CITIC Hong Kongs opening share price rose 1.84%, to HK$4.97, and closed at HK$5.35, up 9.63%. On the 13th, China Tobacco Hong Kong shares continued to rise by 40.93%, closing at HK$754 per share, with a market value of 5.027 billion yuan. The stock price rose more than 50% in the two days of listing.

Depending on a near monopoly business and strong bargaining power upstream and downstream, it may be the key to the popularity of CITIC Hong Kong by investors.

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.

We are the sole operating entity in the business we are currently engaged in, ChinaTobacco Hong Kong said of its competitive advantage in its prospectus. We have strong bargaining power for suppliers and customers and sufficient cash flow.

From 2016 to 2018, net cash earned from CITICs Hong Kong operations was HK$53.9 million, HK$359 million and HK$758 million respectively, while return on equity was 21.1%, 15.9% and 18.2%.

According to Li Yunyi, an international analyst at Anxin, Chinas cigarette sales amounted to 144.5 billion yuan, 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 tobacco market. Sino-Thai International said that only China National 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 abundant, just in need in China, and the monopoly position is stable, so there is no market competition in the short term. CJTIMES_GET(36); Source of this article: author of Changjiang Business Journal: responsible editor of Chu Jie: Wang Xiaowu_NF

According to Li Yunyi, an international analyst at Anxin, Chinas cigarette sales amounted to 144.5 billion yuan, 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 tobacco market.

Sino-Thai International said that only China National 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 abundant, just in need in China, and the monopoly position is stable, so there is no market competition in the short term.

CJTIMES_GET (36);