The Zhitong Finance App learned that CICC released a research report stating that it maintains Smore International's (06969) “outperforming the industry” rating, and considering that domestic market sales have not yet recovered significantly, it lowered the 2024 net profit forecast by 32% to the mother, to 1.7 billion yuan. For the first time, net profit to the mother was introduced in 2025, with a target price of HK$7.8 billion. The company's 2023 results are in line with the previous forecast range. The bank believes that the domestic business declined significantly in 2023, putting pressure on the company's overall revenue and profits, but the export business will continue to grow; looking ahead to 2024, the bank expects the company's performance to stabilize and improve as the domestic market base falls, overseas APV, disposable products, etc. will grow rapidly, and new products such as atomized beauty will be launched.

The main views of CICC are as follows:

The domestic market is expected to improve steadily in 2024, and overseas regions such as Europe will continue to grow rapidly.

By region, the bank expects: 1) US: Revenue in '23 reached 4.46 billion yuan, an increase of 8.3%. The company cooperated steadily with major customers such as Vuse Alto. Subsequent US bomb exchange sales are expected to continue to grow, and special-purpose atomization products are also expected to grow rapidly with product and channel upgrades;

2) Europe and other regions: Revenue reached 6.55 billion yuan in 23, up 13.2%. Among them, revenue from disposable products reached 3.37 billion yuan, up 74.5%, and APV (excluding the US) revenue reached 1.48 billion yuan, an increase of 31.3%. With one-time technology upgrades and sales of new APV products improving, the rapid increase is expected to continue in 2024;

3) China: Revenue reached 160 million yuan in '23, down 92.7%. Relevant revenue declined markedly in the short term after the implementation of domestic policies. It is expected to improve steadily in the future as policies are implemented and supervision of illegal products is strengthened.

Product restructuring has led to a decline in profitability, and gross margins of various categories may remain stable.

In 2023, the company's gross margin reached 38.8%, a decrease of 4.5 ppt. The bank expects the gross margin of the remaining categories to remain steady, mainly due to an increase in the share of disposable products with lower gross profit levels; on the cost side, sales/management/R&D expenses rates were +1.5pp/ -1.7pp/+2ppt, respectively. The company continued to promote cost reduction and efficiency, and the management cost rate continued to decline. The company invested about 1.48 billion yuan in R&D over 23 years, and e-cigarettes and HNB/special-purpose atomizing/atomization accounted for about 69.7%/11.6%, respectively 18.7%. High R&D investment is expected to consolidate the company's leading position and protect medium- to long-term growth.

I am optimistic about the company's strong comprehensive competitive advantage as a global leader in atomization technology. E-cigarette and other businesses are expected to continue to grow in 2024, and the new business is expected to usher in a harvest period.

The forecast anticipates that 1) in the existing business, overseas sales of disposable and APV products are expected to continue to grow rapidly; special-purpose atomization is expected to accelerate growth with improved channel and product layout; 2) in the new business, the company has recently launched first-generation atomized beauty product solutions, and new businesses such as HNB and atomized medicine are expected to usher in breakthroughs and diversified growth curves.

risks

Policy and regulatory risks, customer dependency risks, technical risks, exchange rate fluctuations.