Incident: The company released its 2023 results announcement. The announcement showed that the company achieved revenue of 11.17 billion yuan in 2023, a year-on-year decrease of 8%, of which 2023Q4 achieved revenue of 3.17 billion yuan, a year-on-year decrease of 4%; net profit attributable to ordinary shareholders was 1,645 billion yuan, a year-on-year decrease of 34.5%.
Overseas growth continues, and private brands are growing rapidly. The company's overseas market revenue increased 11% year on year to 11 billion yuan in 2023, mainly due to ① the increase in disposable cigarette sales, which achieved revenue of 3.37 billion yuan in 2023, an increase of 75% year on year; ② the rapid growth of its own brands, and revenue also increased 26% to 1.85 billion yuan. The European bomb exchange business is expected to be temporarily under pressure due to the squeeze of disposable products, the US bomb exchange business is expected to be steady, and VUSE's market share is still on the path of improvement. NJOY is already growing with the help of Altria.
The domestic mainland market is expected to return to a steady growth trajectory after a rapid decline, and the core focus is on strong enforcement.
In 2023, the company's domestic market revenue fell sharply by 93% year on year to 163 million yuan, mainly because China officially entered the era of new regulations in October '22. Although the taste acceptance of national standard products showed an improving trend, demand for national standard products was still under pressure due to the proliferation of non-national standard products. With the cultivation of consumers and the strengthening of enforcement, domestic compliance market demand is expected to return to a steady growth trajectory.
By focusing on the company's compliance value and private brand building in the e-cigarette market, emerging businesses are expected to contribute to a new growth curve. With public health hazards and public opinion pressure brought about by the non-compliant e-cigarette chaos, there is a trend of strengthening enforcement in many countries. For example, in the US market, the FDA is strengthening cooperation with CBP to crack down on products that have not applied for PMTA, and local states are gradually legislating to clean up products that have not passed the PMTA, etc., and the value of companies' compliance operations continues to rise. In addition, there are frequent bans on traditional disposable products in some developed markets. On the one hand, the company has advantages in the field of traditional bomb exchange and is continuously upgrading the number of products. On the other hand, its own brand APV+ bottled oil (DELICIU) product model is expected to benefit. At the same time, the company is also simultaneously strengthening its competitiveness in the compliant disposable market, and is promoting POWER ALPHA 2.0 and TURBO after FEELM MAX. In terms of emerging businesses, CBD/THC atomization has strengthened its localized layout, and the HNB field has built differentiated leading technical reserves. In the field of atomization and beauty, “Arashi” has been released to achieve accurate delivery and effective penetration of media, which is expected to lay the foundation for the company's next stage of growth.
Investment advice: We expect the company to achieve net profit of 18.9/23.8/3.12 billion yuan in 2024-2026, 15%/26%/31% year-on-year, corresponding to 24-26 PE of 20X/16X/12X respectively. Refer to comparable company valuations and maintain a “recommended” investment rating.
Risk warning: Risks related to regulation, customer development falls short of expectations, exchange rates fluctuate greatly, and competition intensifies