Incident: The company released the 2024Q1 results announcement. 2024Q1 achieved profit before tax/profit after tax/net profit of 400/3.40/310 million yuan, +25.2%/+12.8%/+5.6%, respectively.
Q1 Performance returned to positive growth, and overseas growth is expected to continue steadily. The company achieved net profit of 310 million yuan in the first quarter of 2024, a year-on-year increase of 5.6%, returning to a positive growth channel. After the implementation of the new domestic e-cigarette regulations, due to factors such as reduced product flavor and consumption tax, domestic revenue in 2023 fell 92.7% year on year, accounting for 1.5%, and domestic business is expected to bottom out. On the overseas side, in terms of business for corporate customers, the US, Europe and other markets were +8.2%/8.9%, respectively. The company helped major customers maintain the first market share and further increase their share in the US, launched innovative disposable products in Europe, entered major customer supply chains and achieved large-scale shipments. The company achieved revenue of 3.37 billion yuan in 2023, an increase of 74.5% over the previous year, and gross margin showed a trend of increasing quarterly. Overall, we expect the company's overseas business to continue to grow steadily in 2024Q1, driving the first quarter results back to positive growth.
The diversified layout has been revitalized, and we are optimistic about the long-term growth of atomization faucets. The company has a diverse product matrix: 1) In terms of electronic atomization, the company's disposable products equipped with the new FEELM Max technology have achieved large-scale shipments, and its own brands have launched innovative products in the industry. The market share has steadily increased, and the profitability has improved quarterly while disposable products have grown steadily. 2) In terms of heated non-combustible products, the company already has a significantly differentiated and competitive product portfolio, and innovative products have been recognized by customers. 3) In terms of atomization products for special purposes, the company seizes different market segments through a complete product matrix, and is expected to improve product delivery capabilities through the establishment of overseas warehouses. 4) In terms of medical atomization products, the company has completed the development and production layout of 3 drug delivery devices for asthma and COPD, and several devices and formulations have entered the pre-clinical or registered batch production stage respectively. Looking ahead, overseas regulators will tighten regulations on disposable products, and the development of bomb exchange products may usher in a turning point. The company will strengthen market insight and take on market opportunities brought about by stricter disposable product policies.
The company bucked the trend and increased R&D, and is expected to launch differentiated products in various fields and cultivate new growth points.
Investment advice: Currently, overseas markets are the main driving force for the company's performance, and the company's share of revenue from low-gross margin disposable products may increase further. We will adjust the company's profit forecast for 2024-2026. The net profit for 2024-2026 is estimated to be 18.0/20.9/2.47 billion yuan, corresponding to PE 22/19/16 times, respectively, maintaining the “buy” rating.
Risk warning: industry regulation has been tightened, market competition has intensified, and raw material prices have risen sharply