Main points of investment

The 2021 performance forecast is in line with our expectations. The company disclosed the announcement of pre-increase in annual results in 2021 on 2022-1-21, and the company expects net profit in 2021 to be about 50.24-5.553 billion yuan, an increase of 109.3%, 131.4%, and 5.29 billion yuan, respectively, and + 120.35% over the same period last year. The company expects adjusted net profit of 5.18 billion-5.709 billion yuan, an increase of 33.0 percent over the same period last year, 46.6 percent year-on-year, and 5.444 billion yuan for the center, + 39.80 percent year-on-year.

2021Q4 is affected by the introduction of e-cigarette regulatory policies, the performance of short-term fluctuations. The corresponding net profit of 2021Q4 was 9.26-1.455 billion yuan, down 27.09% from the same period last year to an increase of 5.43%, while that of Hub was 1.191 billion yuan, down 10.15% from the same period last year. The adjusted net profit was 9.56-1.485 billion yuan, down 33.38% from the same period last year to 3.09%, while that of the central bank was 1.22 billion yuan, down 17.61% from the same period last year. On a forecast basis, 2021Q4's adjusted net profit fell 4.64 per cent compared with 2021Q3. We judge that the short-term fluctuation of the company's 2021Q4 performance is mainly due to the introduction of atomized e-cigarette regulatory policy, and the brand side adjusts the pace of issuing orders, which has a certain impact on the company's short-term performance. In the follow-up, the regulatory rules for atomized e-cigarettes in 2022 are expected to be issued, which may bring some disturbance to the growth rate of the domestic atomized e-cigarette industry in the short term, but the standardized development of the industry in the medium and long term will help small and medium-sized brands and contract manufacturing enterprises to clear out. Continue to be optimistic about the company's domestic market share. From a global point of view, atomized e-cigarette is in the process of orderly release, the penetration is expected to continue to increase, the company binds the global head customers, and has a strong resistance to the policy risks of a single country or region.

Lead the forefront of atomization technology, technical strength to establish a long-term competitive advantage. In 2018, the company released FEELM atomization technology brand, dense layout atomization patent technology, first-mover advantage is obvious. In 2020, the company's global sales market share reached 18.9%. As of 2021H1, it has a total of 1272 patents and 360 trademarks worldwide. On 2022-1-18, Smoore International Holdings Limited's high-end atomization brand FEELM held a new technology conference in London, unveiling a new generation of ultra-thin ceramic core technology FEELM Air. FEELM Air uses a new generation of bionic film ceramic core, equipped with the industry's first seven-layer composite heating film, the thickness of the film leaps from 80 μ m to the thinnest 2 μ m; the overall ceramic matrix thickness is only 3.5mm, 22% thicker than the previous generation, and has achieved breakthroughs in appearance, taste, energy efficiency, oil leakage prevention and other core pain points. We expect FEELM Air to achieve mass production by 2023 and make a significant contribution to the revenue side, and the expected trajectory of the company's shipping unit price is expected to move up.

Profit forecast and investment rating: the global atomized e-cigarette supervision is becoming more and more perfect. We are optimistic about the continuous expansion of the atomized e-cigarette market after the industry regulation. As a global atomized e-cigarette leader, the company is deeply engaged in technological innovation and has a broad space for development. Maintaining the previous profit forecast, we expect the company's net profit for 2021-2023 to be 5.35 billion yuan, 6.78 billion yuan and 8.86 billion yuan respectively, corresponding to PE34x, 27x and 20x, maintaining the "buy" rating.

Risk hints: the landing time of the policy rules is uncertain; the strength of the policy exceeds market expectations; overseas business income is lower than we expected; subversive technology appears. (note: without special indication, they are all RMB, and the exchange rate of Hong Kong dollar to RMB is calculated at the midpoint of 0.81518 on 2022-1-21)