Core views
The company achieved revenue of 11.168 billion yuan in 2023, -8.0% year on year; realized net profit of 1,645 billion yuan, -34.5% YoY, gross profit margin of 38.8% /-4.5pct. , net profit margin 14.7% /-6.0pct.
Looking at a single quarter, 23Q4 achieved revenue of 3.166 billion yuan, -2.3% YoY; realized net profit of 468 million yuan, or -15.2% YoY. By region, the country achieved revenue of 163 million yuan/ -96.3% in 2008, the revenue share fell to 1.5%, bottomed out in 23Q2, and developed healthily in compliance under the regulatory framework. The company achieved revenue of 11.005 billion yuan/ +11.2% overseas in 23 years. Among them, revenue from disposable, open, exchangeable and other products was 3.37 billion yuan/ +74.5%, 1.85 billion yuan/ +26.0%, and 5.79 billion yuan/ -11.0%, respectively. The volume of disposable products released and open (own brands) maintained rapid growth and rebound pressure.
occurrences
The company announced its 2023 annual results. The company achieved revenue of 11.168 billion yuan in 2023, -8.0% year-on-year; realized net profit of 1,645 billion yuan, or -34.5% year-on-year.
Looking at a single quarter, 23Q4 achieved revenue of 3.166 billion yuan, -2.3% year over year; net profit of 468 million yuan, -15.2% year over year.
Brief review
The revenue structure affects gross profit margin, and the gross margin of disposable products is increasing quarterly.
1) On the profit side, the company's gross profit margin in 2023 was 38.8% /-4.5pct. , net profit margin 14.7% /-6.0pct. Among them, 23H2's gross profit margin was 41.0% /+1.7pct. , +4.8pct month-on-month; 23Q4, the company's net profit margin was 14.8% /-2.3pct. , month-on-month ratio - 1.2pct. The year-on-year decline in gross margin was mainly due to changes in revenue structure: the share of domestic business revenue with high gross margins declined, while overseas disposable products with low gross margins were rapidly released; the year-on-month improvement in gross margin in the second half of the year was mainly due to the company continuing to improve operational efficiency and scale effects, and gross margin of disposable products increased quarterly.
2) On the cost side, the company's sales, management and R&D expenses rates in 2023 were 4.7%, 7.8%, and 13.3%, respectively, +1.5, -1.7 pct., and +2.0pct. The company built a localized marketing team according to the established strategy, strengthened overseas market development and new product promotion, and the sales cost rate increased year-on-year; continued to improve the efficiency of Amoeba's operation and management, and the management cost ratio decreased significantly; increased investment in R&D in the field of atomized medicine, and the R&D cost rate increased.
By region: Steady growth in exports and development of domestic compliance.
1) The domestic market (excluding foreign trade company customers) achieved revenue of 163 million yuan/ -96.3% in 2023. In a single quarter, 23Q1-Q4 achieved revenue of 0.16, 0.47, 0.54, and 46 million yuan respectively. The domestic sales business bottomed out and developed healthily since 23 Q2.
2) Overseas markets (including direct and indirect exports) achieved revenue of 11.05 billion yuan/ +11.2% in 2023, accounting for 98.5% of revenue, of which 23H2 achieved revenue of 5.945 billion yuan, the same as the previous year. See more by product:
Sales to corporate customers: (1) Single-use products achieved revenue of 3.37 billion yuan/ +74.5% in 2023, and 23H2 achieved revenue of 1.87 billion yuan/ +16.1%.
For disposable products, the company's upgraded ceramic core technology platform FEELM Max successfully improved atomization efficiency, achieved a higher number of suction ports under compliance requirements, and quickly became popular in the market.
Sales to corporate customers: (2) Exchange products and other products achieved revenue of 5.79 billion yuan/ -11.0% in 2023, of which the US, Europe and other regions achieved sales revenue of 4.08 billion yuan/ +8.2% and 1.70 billion yuan/ -37.6% respectively. 23H2 rebound and other products achieved revenue of 2.88 billion yuan/ -16.1%, of which the US, Europe and other regions achieved sales revenue of 2.02 billion yuan/ -6.3% and 850 million yuan/ -32.7% respectively. Impacted by disposable products, revenue from exchangeable products declined, but the company's major customer VUSE continued to increase its market share in the US. According to Nielsen data, VUSE's US market share in 2023 was 45.6%, an increase of 4.5 pct over 2022. In terms of special atomization products, 23H2 resumed growth by establishing local warehouses to increase delivery speed, strengthen channel sinking, and improve product matrices.
Sales to retail customers: (3) Self-branded open electronic atomization equipment (APV) achieved sales revenue of 1.85 billion yuan/ +26.0% in 2023, of which the US, Europe and other regions achieved sales revenue of 370 million yuan/ +8.8% and 1.48 billion yuan/ +31.3% respectively. 23H2 achieved overall revenue of 1.20 billion yuan/ +32.4%, 220 million yuan/ +3.8%, and 980 million yuan/ +41.0% of its own brand product revenue respectively. The company has successively launched a variety of differentiated new products, strengthened local teams and digital marketing in overseas markets, enhanced consumer insight, and rapid sales growth.
Outlook: Stricter global regulations, benefits from compliant products, continued investment in atomization technology platforms, and energy for future growth. 1) Domestic: The “Electronic Cigarette Management Measures” began to be implemented in October '22, the e-cigarette consumption tax was introduced in November '22, and the domestic market has entered an era of orderly management. In the future, as non-compliant products are cleared and new national standard product capabilities continue to improve, the market is expected to resume healthy growth. 2) Overseas: Currently, there are still a large number of non-compliant products in the US market. The FDA is strengthening enforcement every quarter, and the direction of supervision is becoming stricter around the world. We believe that manufacturers with diversified products and technical reserves and compliant management, represented by the company, can benefit. 3) New business: In 2023, the company invested 1,482 billion yuan/ +8.1% in R&D expenses, 13.3% /+2.0pct. It continues to accumulate in the field of atomization around the four major strategic tracks of electronic atomization products, products that do not burn when heated, atomization products for special purposes, and atomized medicine. In terms of atomized beauty, 24Q1 launched the atomized beauty brand LOYAL Arashi and first-generation atomized beauty product solutions; in terms of medical atomization, the company has already received approval from European and American drug regulators for 3 formulations and devices for asthma and COPD, and 2 respiratory equivalent drugs have achieved experimental bioequivalence in vitro, and future commercialization can be expected.
Profit forecast and investment advice: Smore International is expected to achieve revenue of 125.22, 142.18, and 16.016 billion yuan in 2024-2026, up 12.1%, 13.5%, and 12.6%; net profit to mother will be 16.82, 19.61, and 2.270 billion yuan, respectively, up 2.3%, 16.6%, and 15.7%; corresponding to the latest PE is 24.8x, 21.2x, and 18.4x, respectively. Although the company's 23-year performance was under pressure due to changes in regulatory policies and changes in consumer trends, the company had sufficient cash reserves, focused on the long term, and insisted on R&D investment, channel development, and brand building. Currently, the valuation has lowered to a low level, and we maintain a “buy” rating.
Risk warning: 1) Risk of changes in new tobacco policies: The company's main business is vaping e-cigarette equipment and components. Downstream customers are in the US, Europe and other regions, subject to local laws and regulations, changes in existing laws and regulations in the electronic atomization industry and implementation of new laws and regulations, and any other entry barriers may increase the company's costs. The company may be adversely affected by sales to customers located in countries or regions subject to laws and regulations prohibited by relevant local authorities; 2) US FDA regulatory change risk: October 12, 2023, US FDA to the United Kingdom and the US Tobacco issued marketing refusal orders (MDO) for 6 non-tobacco-flavored products (including peppermint flavor and mixed fruit flavors) of VUSE Alto e-cigarettes. MDO Reason: The BAT submission did not prove that this mint-flavored product was more effective than tobacco-flavored in helping adult smokers reduce cigarette use. On February 5, 2024, the US Fifth Circuit passed an appeal from major customer RJR. Execution of the MDoS was suspended, and VUSE Alto alcohol cigarettes can still continue to be sold in the US. According to Smore International's announcement, the mint-flavored product provided by the company to major customers accounted for 13% of the company's revenue in the first three quarters. If the FDA still makes decisions prohibiting sales, it may adversely affect the company's revenue in the US market.