Soochow Securities has issued a research report maintaining a "Buy" rating on China Tobacco International (HK) Co., Ltd. (CTIHK). As the sole listed entity under China Tobacco International, the business platform for China Tobacco's global expansion initiatives, CTIHK demonstrates stable development in its core leaf tobacco import and export operations. The export business for cigarettes and new tobacco products is showing upward potential, and there is considerable anticipation for further integration of overseas industrial chain resources. Considering the rising gross profit margin in the cigarette export segment, the firm has raised its profit forecasts for 2026 and 2027 and introduced a new forecast for 2028. It now expects net profit attributable to shareholders for 2026-2028 to be HKD 1.10 billion, HKD 1.34 billion, and HKD 1.56 billion, respectively. This corresponds to a price-to-earnings ratio of 24, 20, and 17 times for those years.
CTIHK's 2025 performance slightly exceeded prior expectations. Revenue for the year reached HKD 14.58 billion, a year-on-year increase of 11.5%. Gross profit was HKD 1.47 billion, up 7% year-on-year, while net profit attributable to shareholders was HKD 980 million, reflecting a 15% year-on-year growth. In the second half of 2025, revenue was HKD 4.26 billion, down 2.5% year-on-year, but net profit attributable to shareholders was HKD 270 million, surging 30% year-on-year. Price increases were a key driver of revenue growth in leaf tobacco import/export and cigarette exports.
Breaking down performance by business segment for the full year 2025, revenues were as follows: leaf tobacco imports HKD 9.54 billion, leaf tobacco exports HKD 2.48 billion, cigarette exports HKD 1.67 billion, new tobacco product exports HKD 60 million, and Brazil operations HKD 830 million. The year-on-year changes were +16%, +20%, +6%, -52%, and -21%, respectively. Analyzing volume and price, import/export volumes changed by -1%, +3%, -3%, -51%, and -4% year-on-year, while prices changed by +17%, +17%, +10%, -3%, and -18% year-on-year. Revenue growth in leaf tobacco imports was driven by higher prices, while leaf tobacco exports saw increases in both volume and price. Volumes for cigarette exports and Brazil operations were affected by shipment schedules, and new tobacco product volume was impacted by geopolitical and policy factors.
In the second half of 2025, segment revenues were HKD 1.14 billion, HKD 1.33 billion, HKD 1.11 billion, HKD 50 million, and HKD 630 million, with year-on-year changes of -22%, +16%, +9%, -46%, and -4%. Corresponding volume changes were -21%, -4%, -1%, -45%, and +15%, while price changes were +0.3%, +20%, +10%, -3%, and -16%.
The company's overall gross profit margin for 2025 was 10.1%, a slight decrease of 0.4 percentage points year-on-year. Segment gross margins were 8% for leaf tobacco imports, 6% for leaf tobacco exports, 23% for cigarette exports, 5% for new tobacco product exports, and 19% for Brazil operations. These changed by -1.9, +2.2, +5.2, +0.1, and +1.9 percentage points, respectively. The decline in the leaf tobacco import margin was due to increased procurement costs not being fully passed on to sales, while the improvement in leaf tobacco exports stemmed from enhanced customized services and refined pricing strategies. The higher cigarette export margin resulted from the scaling of self-operated channels and optimization of the product mix. The gross profit margin for the second half of 2025 was 12.4%, an increase of 2.9 percentage points year-on-year, with segment margins of 8%, 7%, 21%, 5%, and 17%.
Effective July 1, 2026, cigarettes from industrial companies will be exported directly by CTIHK to the domestic duty-free market. This supply chain optimization is expected to further boost the gross profit margin of the cigarette export business, leading to sustained improvement in profitability. As the primary entity for international market expansion and an investment and financing platform, CTIHK is accelerating its global footprint through both organic growth and external expansion, promoting synergistic development across the entire industrial chain.
Potential risks include changes in regulatory policies for tobacco-related products across different countries, alterations in national policies regarding tobacco leaf cultivation and trading, and disruptions to import/export trade due to geopolitical factors.
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