SMORE International Announces 2023 Results
In 2023, it achieved revenue of $11.168 billion (-8%), net profit of $1,645 million (-34%), and total comprehensive income of $1,566 billion (-37%).
2023Q4 achieved revenue of $3.166 billion (-3.5%). Since the adjusted profit caliber is no longer disclosed, we calculate comprehensive comprehensive income for 23Q4 of 372 million yuan (-8%).
Gross margin fell from 43.3% in '22 to 38.8% in '23, mainly due to an increase in the share of disposable products.
Market beta: New types of tobacco overseas continue to develop rapidly, and the domestic beauty device market has more space1) Nebulized e-cigarettes: According to Sullivan, the global electronic atomization equipment market size (factory caliber) reached US$11.5 billion (+15%) in 2023, with a 13.7% market share of SMOORE; and predicts a compound growth rate of 11.5% from 2023-2028.
2) HNB: According to Sullivan, the HNB global market size is $19.42 billion, and the 2023-2028 CAGR is 18%.
3) Beauty devices: According to Eurovision, China's household beauty device market size is 10 billion yuan in 2021, and is expected to reach 251-37.4 billion yuan in 2025.
The share of domestic revenue has declined drastically. Overseas disposable product sales & independent brand business surged by 163 million (-93%) in mainland China, accounting for 1.5% of revenue (18.5% in '22). This is mainly due to the domestic market entering an era of orderly management, where product flavors have decreased and consumption tax has increased purchase costs; overseas revenue of 11 billion dollars (+11%).
1) Sales to corporate customers: Revenue of 9.321 billion (-12.7%) was achieved in 2023, of which 5,074 billion (+8.9%) in the European & other markets, accounting for 45.4%, was due to disposable e-cigarette emissions (3.37 billion, +74.5% YoY, accounting for 30% of total revenue); US market revenue of 4.084 billion (+8.2%), accounting for 36.6%. The largest customer, Vuse, had revenue of 4.56 billion dollars in 2023 (-11%, and the exchangeable portion was impacted by non-compliant products), but its share in the exchange market continued to increase. In 2023, Vuse's market share in the US was 45.6% (41.1% in '22).
2) Independent brand sales: In 2023, the APV business achieved 1,847 billion yuan, +26% year-on-year, and the revenue share increased to 16.5%, and the new product iteration was smooth. Of these, the US is 372 million, and Europe & other countries are 1.75 billion.
Technology iteration, efficiency improvement
1) E-cigarette product technology continues to be iterated, and the number of parts increased by 30% with the same fuel injection volume.
2) Increase the localization layout of overseas markets, and have operated 5 overseas warehouses in Europe and the US by the end of '23.
3) The total R&D expenses were 1,483 million (+8%), of which 278 million (+67.4%) were spent on research and development of atomized medical & beauty products. 2024Q1 launched its own brand Arashi Atomized Beauty Device.
4) Labor costs as a share of revenue fell from 7.2% in '22 to 5.5%, and the level of automation increased significantly.
FDA enforcement is being strengthened, which is beneficial to the sale of exchangeable products in the US, and domestic regulation of non-compliant products 1) US market: Stricter enforcement. In '23, FDA enforcement on non-tobacco-flavored e-cigarettes was strengthened quarterly. In February '24, 20 retailers illegally selling ELFBAR brand e-cigarettes were subject to civil fines. The maximum fine for a single violation was US$20,700, which helped SMOORE's customer-compliant products to be sold in the US.
2) Domestic market: Sales of compliant tobacco-flavored products are expected to rebound. On March 18, the Office of the State Tobacco Monopoly Administration issued the “Notice on Launching the 2024 Special Inspection to Regulate the Order of the E-cigarette Market”. The inspection period is 4 months. The inspection includes focusing on inspecting certified e-cigarette related manufacturers in compliance with production and operation, standardized use of licenses, and mapping out clues about illegal e-cigarette operations by uncertified market players. We believe it will facilitate domestic sales of compliant tobacco-flavored products.
Profit forecasting and valuation
In 2023, the company's net operating cash flow was 3.2 billion yuan, which was significantly higher than profit, showing strong collection capacity; in terms of operations, sales of compliant products serving customers at home and abroad are expected to rebound. At the same time, the nebulized medical/beauty/HNB products in the layout are expected to gradually enter the release stage, and subsequent growth can still be expected. We expect to achieve revenue of 12.751 billion, 14.549 billion, and 16.678 billion yuan in 24-26, an increase of 14%, 14%, and 15% year-on-year, and achieve adjusted net profit of 1,654 billion yuan, 1.902 billion, and 2,232 billion, +1% year-on-year. The current market value is 25.49X, 22.17X, and 18.64X for 24-26 PE, maintaining the buying rating.
Risk warning
Policy impact intensifies, customer expansion falls short of expectations, promotion of new technology falls short of expectations, industry competition intensifies