China Flavors & Fragrances optimistic about vaping prospects

■ Leung Mei-yuk, Corporate Finance and Investor Relations Manager of China Flavors & Fragrances. Photo by Chen Chu-qian.

Hong Kong Wen Wei Po reported (by reporter Chen Chu-qian) that Leung Mei-yuk, Corporate Finance and Investor Relations Manager of China Flavors & Fragrances (3318), said at a media luncheon yesterday that the mainland vaping market has tremendous potential. The company completed the acquisition of vaping manufacturer Kimree in May this year, and revenue booked in the first half of the year reached RMB 33.8 million, accounting for 8.4% of total revenue.

Following the earlier completion of the acquisition of vaping factory Kimree, Inc., which guaranteed a 2016 profit of RMB 60 million, the profit attributable based on the acquisition completion date is expected to reach RMB 48 million for the full year. Together with the group’s acquisition of four tobacco flavoring companies, the two acquisitions are expected to contribute a total of more than RMB 80 million in profit to the group this year.

Leung Mei-yuk said that the Chinese government classifies vaping products as electronic products rather than tobacco products, easing market concerns, as this confirms that developing a vaping business will not conflict with the traditional tobacco business. The group’s existing cigarette factory clients are also interested in developing vaping products, so after acquiring Kimree, it can generate synergies through its own sales channels. At present, cigarette factories in Shandong and Anhui have already contacted the group and visited Kimree’s plant in Huizhou to inspect its production environment and specifications. Leung added that the group will not make any more large-scale acquisitions this year or next year, and will instead focus on properly developing the newly acquired businesses, as the guaranteed profit period is only three years and the group wants to make full use of the time to become familiar with the new business operations. She also said the group hopes to acquire companies engaged in food flavors or daily chemical fragrances in the future. There are no specific size requirements, but they must be profitable and capable of generating synergies with the group.

Focus on core business development over the next two years

Leung Mei-yuk said that the company has already acquired four flavor manufacturers this year and currently has no further acquisition targets. The company plans to focus on developing its core flavors and fragrances business over the next two to three years. The new plant in Dongguan is expected to begin production in the first quarter of next year, with a designed production capacity of about 5,000 tons, including 3,000 tons of food flavors and 2,000 tons of daily chemical fragrances. As of the end of June this year, profit attributable to the company increased 55.3% year-on-year to RMB 48.3 million, revenue rose 17.1% year-on-year to RMB 400 million, and gross profit margin increased by 3.2 percentage points to 48.3%.