CICC Raises Smoore International Target Price by 47% to HKD 11.5

On June 19th, CICC released a report titled "Smoore International (06969.HK): Multiple categories of vape products steadily improving, new businesses such as HNB expected to enter harvest period." The report pointed out that with strengthened regulations in Europe and the United States, improving sales of new products, and continued strong overseas demand, the company's e-cigarette products in multiple categories are expected to steadily improve in growth prospects. The company's global market share is expected to increase, and new businesses such as HNB, vaporized beauty, and medical products are also expected to gradually enter a harvest period. CICC maintains a outperform rating on Smoore International, raising the target price by 47% to HKD 11.5.

The reasons listed by Zhongjin Company are as follows:

1. With the development of new products and the enhancement of localization operations, the growth potential of multi-category e-cigarettes is expected to steadily improve.

1. Disposable: Overseas markets have maintained a strong demand for disposable terminals, with the promotion of new products to major clients and successful acquisition of new customers. The company's disposable products are expected to continue to grow. 
2. APV, THC: With strengthened product capabilities, optimized product matrix, and improved local teams and channels overseas, the company's self-owned brand APV is expected to continue growing rapidly, while the growth potential of THC is expected to recover. 
3. Pod system: The company has long-term strategic partnerships with major clients such as Vuse alto, and supply prices are expected to remain stable. Despite short-term pressure due to high base numbers and disruptions from illegal products, it is expected to stabilize and improve in the second half of 2024.

2. Overseas e-cigarette regulations are tightening, benefiting leading companies like Smoore with the potential to increase their market share in the medium to long term.

1. Europe: The UK plans to implement a comprehensive ban on disposable e-cigarettes from April 2025, with restrictions on the sale of non-rechargeable or refillable e-cigarette products. According to the General Administration of Customs, exports of disposable e-cigarettes to the UK from China have seen a significant decline since March, while exports of refillable products have shown faster growth. 
2. United States: Currently, multiple states in the US have passed legislation requiring registration of e-cigarette products. Each state can refer to the FDA's PMTA review process to determine a whitelist for e-cigarette products within their jurisdiction, and establish regulations for product and distribution channels. This regulatory framework is expected to support compliant e-cigarette brands and contribute to their growth. With overseas regulations strengthening, the share of illegal products and disposable e-cigarettes is expected to decrease, while refillable and APV products are likely to capture some consumer demand. Companies leading in research and development, manufacturing capabilities, and offering a variety of compliant products stand to benefit from regulatory standardization in the long term, as they work with major customers to increase their global market share.

3. The new business is expected to enter a period of harvest, with the company seen as a global leader in atomization technology due to its research and development advantages. There is optimism for the future growth prospects of multiple businesses working together. The company believes that its continued investment in research and development will support long-term growth, with an estimated cumulative research and development investment of over 4.5 billion RMB from 2022 to 2024. Subsequently, the new business is expected to see a period of harvest.

1. According to Frost & Sullivan, the global HNB end market is estimated to reach around 19.42 billion US dollars in 2028, with a CAGR of 18% from 2023 to 2028. The company continues to focus on research and development of innovative heating technology, aiming to provide a differentiated user experience. It is expected to successfully collaborate with major overseas clients in the future, becoming a new pillar of growth in the medium to long term. 
2. The company launched the "Lanzhi" atomized beauty product solution in March, with potential for simultaneous advancement in both the consumer and business sectors. The development of atomized delivery products for treating diseases such as COPD and asthma is progressing smoothly, with the potential for the atomized medical business to gradually enter a period of harvest in the future.

Finally, CICC has decided to maintain its profit forecast unchanged, with the current price corresponding to a P/E ratio of 31/26 for 24/25 years. The rating of outperforming the industry is maintained, based on the potential success and broad development prospects of new businesses. The target price has been raised by 47% to HK$11.5, corresponding to a P/E ratio of 41/34 for 24/25 years, with a 20% upside potential.

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