The company announced its 2023 results, which were basically in line with expectations: 2023 revenue of 11.168 billion yuan, -8.0% year on year, net profit of 1,645 billion yuan, or -34.5% year on year; total comprehensive comprehensive revenue of 1,566 billion yuan, or -37.2% year on year.
US market: The decline has been reciprocated, and cannabis atomization is still filling up basic capabilities. In 2023, TOB's revenue in the US market was 4,084 billion yuan, +8% year-on-year. 1) Replaceable: Revenue is expected to decline year-on-year in 2023, mainly because the US FDA's enforcement of single-use e-cigarette regulations is not strict enough, and the share of exchangeable cigarettes is still being impacted at one time; however, by improving the level of automation, the company helped further increase the market share of major customers. According to Nielsen data, the VUSE market share of British and American tobacco increased from 41.1% in 2022 to 45.6% in 2023.
Looking ahead, the FDA review results of BAT mint flavor can still continue to be sold at the appeal stage. According to historical experience, it usually lasts for half a year to 1 year, and 24-year orders are safe for the time being; in the long run, compliance benefits the company's share. 2) Cannabis atomization: Revenue is expected to increase slightly in 2023. Mainly it will take time to complete the middle and low end product lines. With product line supplementation, small and medium dealer expansion, and the previous big dealer capital chain issues have been mitigated, revenue is expected to accelerate in 2024.
Europe and other overseas markets: Single-use e-cigarette foundry continues to increase, contributing to major increases; open independent brands are growing steadily. 1) Single-use: High double-digit growth is expected in 2023. Consumption habits and consumer groups for disposable e-cigarettes in Europe have been cultivated, and the taste of disposable e-cigarettes has not been regulated, and disposable e-cigarettes have become mainstream in the e-atomization category. Through differentiated products, the company quickly helped core customers become the number one brand in the market share of disposable e-cigarettes in many European countries. Looking ahead, there is a trend of tightening the regulation of disposable e-cigarettes in the UK and the US, and the company is also increasing the development of products suitable for the conversion of disposable users to meet related needs. 2) Open style:
2023 revenue of $1,847 million, +26% YoY. Open independent brands accelerate the progress of R&D and innovation, and promote localization and decline on the channel side. It is expected that the steady growth trend will continue in the future.
Domestic market: Domestic sales improved from quarter to quarter. The company's revenue in 2023 was 179 million yuan, or -92%. The penetration rate of e-cigarettes, mainly due to the new national standard tobacco flavor, is still relatively low, and is being impacted by the illegal market; however, judging from the pace, the domestic market showed a trend of improving season by season.
Looking ahead to the future, the new e-cigarette regulations will return competitiveness to product strength and benefit technology companies to integrate the market; in addition, current shipments are low. From the perspective of cost control, brands will choose to centralize the supply chain, which is conducive to increasing the company's share.
Changes in the product structure lowered the gross profit margin, and the overall cost ratio remained flat during the period, speeding up the commercialization of R&D results. In 2023, the company's gross profit margin was 38.8%, -4.5 pct year on year. The main factors are: from a product perspective, the share of low-margin one-time revenue increased, and from a market perspective, the share of high-margin domestic market revenue declined. In 2023, the company's sales, management, R&D, and financial expense ratios were 4.7%, 7.8%, 13.3%, and 0.2%, respectively. Compared with +1.5, -1.7, +2.0, and 0.0pct, the overall stability was stable, but the R&D cost rate increased, mainly due to increased investment in the field of medical atomization. In 2023, 3 formulations and devices targeting asthma and COPD were approved by European and American regulators. Two respiratory equivalent drugs achieved experimental in vitro bioeffects, and commercialization was promoted in an orderly manner.
SMOORE International is deeply involved in global e-cigarette foundry. Years of technology iteration and commercialization capabilities, and continuous and stable large-scale delivery and quality assurance capabilities have formed a long-term competitiveness, consolidated its first-mover advantage through patent protection, and was deeply tied to major global customers. Considering that the impact of overseas reversals exceeded expectations, we lowered our 2024-25 net profit forecast to 17.97/2,070 billion yuan (previous value was 24.28/2,876 billion yuan), adding a profit forecast of 2,282 billion yuan for 2026, and +9.2%/+15.2%/+10.2% year-on-year for 2024-2026, respectively. The PE corresponding to the current market value is 21/18/16 times. The current valuation is low. The 2024 PE of Fog Core Technology's refillable e-cigarette label is 30 times, while the company's PE in 24 is only 18 times. The company has remarkable technical advantages and continues to invest in R&D expenses. Many new products such as HNB and non-smoke-free products are being commercialized at an accelerated pace. It still has growth potential in the medium to long term, and maintains an “increase” rating!
Risk warning: PMTA review progress falls short of expectations, new product development falls short of expectations, domestic market impact exceeds expectations, etc.