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Recently, Smoore International Holdings Limited (hereinafter referred to as "Smoore", stock code: 6969) released its financial updates for the period ending on September 30, 2024 (click to read the article: Smoore International: Q3 revenue of 32.86 billion yuan, an increase of 14.1%, net profit of 3.79 billion yuan, a year-on-year decrease of 22.5%), attracting the attention and analysis of multiple securities research institutions.
Firsts compiled analysis and interpretations of Smoore's latest financial report from multiple securities firms, as follows:
CICC maintains "outperform" rating for Smoore in the industry.
According to reports, China International Capital Corporation (CICC) has released a research report stating that it is maintaining its "outperform industry" rating on Smoore, based on the potential for new businesses such as HNB to become new growth pillars and bring incremental performance. The target price has been raised by 17% to 13.5 Hong Kong dollars.
Private label APV is driving revenue growth in Q3, while disposable e-cigarettes are facing relative pressure.
In the first quarter, Company Q3 achieved revenue of 3.28 billion yuan, with year-on-year and quarter-on-quarter growth rates of +14.1% and +16.5% respectively. The bank predicts that, 1) APV: With the support of various dimensions such as the establishment of localized channels in Europe and America, product differentiation innovation, and digital marketing system, the company's self-owned brand APV revenue is expected to continue its rapid growth trend; 2) Pod-type: Driven by the strengthening of e-cigarette standardization regulations in Europe and America and the upgrading of company products, Q3 Pod-type is expected to steadily improve; 3) disposable: Against the backdrop of strengthened regulation of disposable e-cigarettes in the UK, continuous clearance of related product channel inventory, the company's Q3 disposable product shipments may face some pressure.
Research and development expenses continue to be high, supporting mid to long-term growth.
Momentum (A Company) expects its gross margin to improve with the growth of high-margin own-brand and disposable businesses, and the optimization of product structure is expected to drive the company's gross margin steadily higher; on the expense side, the company is increasing its efforts in developing new businesses such as HNB (heat-not-burn) and atomization medical products, with increased research and development expenses and management costs in Q3, combined with the impact of provision for income tax, the company achieved a net profit of 380 million yuan in Q3, a year-on-year and quarter-on-quarter change of -22.5% and +10.2%, respectively.
HNB new technology is expected to achieve commercial success, accelerating the development of aerosol beauty and medical applications.
The company is expected to invest over 4.5 billion yuan in research and development from 2022 to 2024. Continued R&D investment is expected to gradually enter the harvest period for new businesses. 1) HNB: According to Frost & Sullivan, the global HNB market is expected to reach $19.42 billion in 2028, with a CAGR of 18% from 2023 to 2028. The company has reserved forward-looking heating technology and is expected to achieve differentiated user experience in multiple dimensions. Overseas large customer orders are expected to be smoothly introduced, becoming a new growth pillar. 2) Nebulized medical and beauty: The company's research and development of products combining pharmaceuticals for diseases such as chronic obstructive pulmonary disease and asthma is steadily progressing. The application scenarios of nebulized beauty are expected to become richer in the future, creating a diverse growth curve.
With the overseas regulatory standards becoming more standardized and new businesses becoming commercially viable, the company sees wide-ranging growth prospects in the medium to long term as a global leader in atomization technology.
The bank believes that in the existing business, with the promotion of the European disposable ban, the American e-cigarette whitelist, and flavor approvals, the industry's standardized development is expected to drive the optimization of new tobacco product structures. The company, as a leader in research and development-driven, multi-category compliant operations, is expected to continue to benefit. In the medium to long term, with large customers achieving global market share growth. In new business, with the gradual commercialization of atomized beauty, heat-not-burn, and atomized medical products, research and development investment is expected to enter a harvest period.
Caitong Securities: Q3 revenue sees steady growth with a focus on increasing HNB business.
Caitong Securities expects Smoore's net profit attributable to shareholders to be 17.0/20.5/24.8 billion yuan from 2024 to 2026, with corresponding P/E ratios of 43/35/29 times. They maintain a "buy" rating on the stock.
The growth of our own brand continues to accelerate, but profit growth is being constrained by increased expenses.
On the revenue side, the company's third-quarter revenue increased by 14.1% year-on-year, mainly driven by the growth in revenue from its own brand business and closed-end products in enterprise client business. In the first half of the year, revenue from the company's own brand business increased by 71.9% year-on-year to 1.116 billion yuan, and is expected to continue with rapid growth in the third quarter. The company's own brand business is fully promoting digital marketing operations, monitoring channels to quickly respond to consumer demands, while also increasing efforts to expand in international markets and localize development, with the company's own brand Vaporesso consistently gaining market share in open-end products. On the profit side, the company's third-quarter net profit decreased by 22.5% year-on-year. On one hand, research and development expenses and management expenses continued to increase, and on the other hand, the provision for income taxes saw a significant increase compared to the same period, which lowered overall profit growth. Looking at quarter-on-quarter comparison, pre-tax profit in the third quarter increased by 24.4%, mainly due to growth in revenue and gross profit, with the increase in tax provision resulting in a 10.2% quarter-on-quarter increase in net profit.
Continue to increase research and development investment to support the growth of the HNB business.
In the third quarter, the company continued to increase its investment in product development for HNB (Heat-Not-Burn) products and vaporized medical products. According to the company's half-year report, R&D expenses in the first half of the year increased by 23.7% year-on-year to 7.60 billion yuan. According to a report by Sullivan, the global HNB market is expected to grow at a CAGR of approximately 15.5% from 2023 to 2028, reaching 755.1 billion US dollars in 2028. The company currently has a significantly differentiated and competitive portfolio of HNB products, with innovative products receiving customer recognition. If the company successfully secures large orders from major clients like British American Tobacco in the future, it is expected to contribute to an increase in performance. By increasing investment in R&D against the trend, the company is expected to launch differentiated products in multiple fields, cultivate new growth points, and benefit from stricter regulations on non-compliant products, ultimately leading to the growth of its leading brand in the vaporization industry. The company is poised to fully benefit from the growth of overseas demand for new tobacco products and the increase in market share from large clients, and holds a positive outlook on the long-term growth of the vaporization industry leader.
Huatai Securities: Bright Q3 Revenue Performance, Continued Progress in New Business
Huatai Securities stated that considering: 1) Smoore continues to strengthen product innovation and category expansion, and its research and development and management advantages are continuously solidified; 2) the outstanding value of compliant markets after the implementation of regulatory policies in various countries, highlighting its long-term value attributes; 3) the smooth progress of new businesses is expected to open up a new growth curve, giving Smoore a 50x PE ratio for 2024, with a target price of 15.42 Hong Kong dollars (previous value was 12.37 Hong Kong dollars), and maintaining a "buy" rating.
The growth of our own brand and the recovery of closed-loop business drive revenue growth.
From a business perspective: 1) In the B2B sector, the enforcement efforts of the US FDA against non-compliant e-cigarette markets are constantly increasing; the regulatory framework for e-cigarettes in Europe is gradually improving, with countries like the UK announcing a ban on the sale of disposable products. The demand for traditional disposable electronic vapor products is transitioning towards new types of closed and open systems, with the regulatory advantages mentioned above adding to the introduction of new products. Starting in Q2, the revenue growth of pod-type products is expected to improve, and we anticipate this trend to continue in Q3, leading to impressive revenue performance. 2) In the B2C sector, as a bright spot in growth for the past 24 years, the company continues to expand its market for proprietary brands. Year-on-year revenue for the first half of 24H1 increased by 71.9% to 1.116 billion yuan, and we expect the impressive performance of proprietary brand business to continue in Q3. Looking ahead, benefiting from the recovery of traditional businesses and stable growth of proprietary brands due to strengthened enforcement measures overseas, we are optimistic about the company's continued impressive revenue growth in 24Q4.
Increased investment in research and development, as well as provision for income tax expenses, have put pressure on profits.
The company's Q3 2023 profit performance was weaker than its income, mainly due to: 1) expenses, with the company continuing to increase its investment in product development for HNB products and nebulized medical products according to its established plan, leading to an increase in research and development expenses; 2) income tax, as stated in the company's announcement, the provision for income tax expenses in Q3 2024 increased significantly compared to the same period last year, resulting in weaker quarterly net profit performance compared to pre-tax profit. However, when comparing to the second quarter, the company's pre-tax profit in Q3 2024 increased by 24.4% compared to the previous quarter, and post-tax profit increased by 10.2%. We believe this was mainly due to growth in income compared to the second quarter and an improvement in gross margin due to optimization of the business structure.
Continued research and development investment, smooth progress in new business, expected to unlock a new growth curve.
While traditional business steadily recovers, the company continues to drive research and development innovation in the following areas: 1) sustained research and development investment in the field of Heat-Not-Burn tobacco products, as a medium to long-term strategy with significant growth potential; 2) in the medical nebulization field, completed the development and production layout of several drug delivery devices for asthma and COPD in the first half of the year, as well as the development of a dozen drug formulations, with formulations and devices approved by European and American drug regulatory agencies; 3) in the beauty nebulization field, the company launched the MOYAL LanZhi Nebulizer Beauty Device for retail customers in the first half of the year.
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