SMOORE Announces a 42% Fall of Q3 NT, Partly Due to Decreased Prices of Major Clients

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SMOORE International, a front-running OEM of vaporizing devices, saw decreased total revenue and net profit in Q3.

On Oct. 14, SMOORE International Holdings Limited (SMOORE, 06969.HK) announced that for the last three months as of Sept. 30, the unaudited group's total comprehensive income for the period was ¥704.4 million ($97.9 million), compared with ¥1,219.3 million ($169.6 million) for the same period last year, a decrease of 42.2% year-on-year. The figure for the last 9 months was ¥2,088.5 million ($290.4 million), a year-on-year decrease of 49.0% from ¥4,098.2 million ($569.9 million).


The financial data disclosed by SMOORE International shows that for the past three months till Sept. 30, its unaudited group adjusted net profit was ¥721.0 million ($100.2 million), compared to ¥1,248.8 million ($173.7 million) for the same period last year, a decrease of 42.3% year-on-year, while that of the past nine months was ¥2,157.3 million ($300.0 million), a decrease of 48.9% compared to ¥4,224.1 million ($587.4 million) for the same period last year.


In the announcement, SMOORE International pointed out that there were three main reasons for the decrease in total revenue in the third quarter: First, the gross profit margin decreased year-on-year, mainly due to lower prices for a few large clients in the first half of 2022, but the prices remained stable compared to the second quarter, while the disposable product business with lower gross profit margin witnessed major growth and accounted for a higher proportion of the overall business.


Second, in accordance with the established strategy, the group continued to increase investment in R&D, especially in basic research in atomizing technology, medical and health to enhance long-term competitive advantages and cultivate new growth areas, with a substantial increase in R&D expenses in the third quarter compared to the comparative period.


Third, to meet development needs in the long run and enhance the group's management and marketing capabilities, it increased its investment in information systems, organization and processes, and marketing system construction, resulting in a major increase in management and sales expenses compared to the comparative period, but remaining relatively stable compared to the second quarter.


In the announcement, SMOORE International noted that, as described in the prospectus dated June 29, 2020, due to the one-time nature of the share-based payment expense related to the pre-IPO share option plan in connection with the employee incentive plan, the ML did not internally consider this item as a key operational or financial indicator when reviewing the group's performance. Therefore, eliminating the impact of this item in the calculation of Adjusted Net Profit would better reflect the group's underlying operating performance and facilitate periodic comparisons.


The announcement disclosed that for the three months till Sept. 30, the share-based payment expense related to the pre-IPO share option scheme of Seymour International was ¥16.6 million ($2.3 million), compared to ¥29.5 million ($4.1 million) for the same period of the previous year.


The official website shows that SMOORE International was established in 2009 and is the listed entity of Shenzhen SMOORE Technology Co., Ltd, which owns a private brand (VAPORESSO) and three technology brands (FEELM, CCELL and METEX). The group is headquartered in Bao'an District, Shenzhen, with a total of some 20,000 employees. On 2020 July 10, SMOORE International was listed on the Hong Kong Stock Exchange with an issue price of HK$12.4 ($1.6) and closed at HK$31 ($3.9) per share on the first day of listing, with a total market value of HK$178.05 billion ($22.7 billion).


According to the introduction of the company, SMOORE produces electronic atomization designs and components based on ODM manufacturing of heated non-burning products, which are sold to tobacco companies, independent electronic atomization companies and retail customers. From the media reports, in addition to the domestic RELX, MOTI, YOOZ and Snowplus, SMOORE International also OEM for overseas large customers such as British American Tobacco, whose Vuse series is currently the top 2 e-cigarette in the United States, the other being Juul.


In March 2021, the Ministry of Industry and Information Technology of China solicited opinions from the public on “On the Amendment of the People's Republic of China Tobacco Monopoly Law Implementation Regulations”, and opinions proposed that new tobacco products such as e-cigarettes should comply with reference to the “Implementation Regulations” on the implementation of the relevant provisions of cigarettes. On the day the news was announced, e-cigarette concept stocks plummeted, and the following day, SMOORE International's shares in Hong Kong also plummeted by 27%.


In March 2022, the State Tobacco Monopoly Administration issued the “Electronic Cigarette Management Measures”, which clarified the regulatory details of new tobacco products such as e-cigarettes, with flavors clearly limited to tobacco flavor. on October 1, 2022, the “Measures” and “Mandatory National Standards for Electronic Cigarettes” came into full effect.


In September, Western Securities pointed out in a report reviewing the semi-annual report of SMOORE that its European and other markets saw a shining performance, while the Chinese and U.S. markets entered an industrial adjustment period. The recurring covid-19 pandemic in the first half of 2022 had a negative impact on the company's production, supply chain and logistics.


Western Securities expects that with the tightening of industry regulation, the future landscape will move toward concentration, and SMOORE International is expected to gain in the long term. Western Securities also made risk tips in the report: demand not as expected, regulation more than expected, and new business development not as expected.


As of October 14, SMOORE International closed up 2.84% at HK$9.400 ($1.2), with a total market capitalization of HK$57.133 billion ($7.3 billion). Compared with the market value on the first day of listing, the total market value of Seymour International has fallen by 67.9%. If compared with the highest market value after the listing (once exceeded 500 billion RMB, $69.5 billion), the total market value of Seymour International has fallen by nearly 90%.



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