The company's development is driven by two wheels in lithium battery equipment and e-cigarette business. The company's traditional business is lithium battery equipment. Benefiting from the recent wave of new energy industrialization in China, the company's revenue increased from 850 million yuan in 2016 to 9.02 billion yuan in 2022. The company's equity structure is stable. Shanghai Electric became the controlling shareholder in 2019, helping the company's equipment business sales orders exceed 10 billion dollars for the first time in 2021. In 2018, the company acquired a 51% stake in Skoll e-cigarettes. After a thorough layout in recent years, the e-cigarette business has become the company's second growth pole since 2023. In the first half of 2023, the company's e-cigarette business achieved revenue of 1,433 billion yuan, an increase of 1477.33% over the previous year.

Domestic e-cigarette brands are becoming increasingly popular, and are expected to benefit from the rise of the overseas disposable e-cigarette market. In 2022, world e-cigarette sales were US$23.56 billion, up 20% year on year, far exceeding the growth rate of traditional cigarettes and other categories.

Among them, disposable e-cigarette sales were US$2.55 billion, nearly doubling year-on-year. The gradual approval of regulatory agencies has played an important role in the development of the industry, and many foreign authorities have also recognized the harm-reducing effects of e-cigarettes. China is the largest manufacturer and exporter of e-cigarettes in the world. Among them, Shenzhen's e-cigarette 23H1 exports account for 69.3% of the country. Domestic e-cigarette manufacturers are mainly ODM/OEM. Downstream consumption is mainly concentrated in Europe and the US. E-cigarette sales in the US/UK/Canada were US$90.0/50.3/19.8 billion respectively in '22. Single-use e-cigarettes are closed e-cigarettes among atomized e-cigarettes, and their penetration rate is rapidly increasing in Europe and the US. The UK market performed particularly well. Sales of disposable e-cigarettes in 2022 increased 1116.9% year over year to US$1.08 billion, and the share of sales increased from 0.6% in 2020 to 43.1% in 2022. Compared with exchangeable e-cigarettes, disposable e-cigarettes have many advantages such as rich taste and low price. Chinese e-cigarette manufacturers have a complete industrial chain and rich OEM experience, and are expected to transform into influential brands. Chinese brands represented by ELFBAR and SKE are expected to fully benefit from the growth opportunities of the overseas disposable e-cigarette market.

As the target of a scarce private brand of e-cigarettes, high growth can be expected. Skoll e-cigarettes were founded in 2013 and were initially deeply involved in the application of atomizers in the field of e-cigarettes. Technological innovation is Skoll's core competency. Its launch of the Vfly technology platform has enabled Skoll's e-cigarette products to perform excellently in maintaining excellent taste. In 2018, the company completed the acquisition of Skoll, helping it carry out intelligent upgrades and further enhancing Skoll's competitiveness. Skoll's market positioning is mainly in overseas European and American markets. The private brand strategy launched in 2022 launched the “SKE” brand to push Skoll into a period of high growth. The e-cigarette race has the characteristics of “heavy snow on long slopes”. Skoll's overall net profit margin for the first half of 2023 reached 29.1%, exceeding market expectations.

Profit forecast, valuation and rating: We forecast that the company's 2023-2025 revenue will be 106.03, 134.89 and 16.335 billion yuan, respectively, and net profit of 8.02, 10.96 and 1,487 billion yuan, corresponding to EPS of 1.23, 1.69 and 2.29 yuan, and the current stock price corresponding to PE is 16x, 12x and 9x. The business of the company's Skoll subsidiary is developing rapidly, and the e-cigarette business is expected to enter a harvest period. For the first time, coverage was given an “increase in holdings” rating.

Risk warning: risk of macroeconomic cycle fluctuations, policy risk, and risk of new product development falling short of expectations.