Introduction to this report:
The company's performance has been steadily restored, and the pace of expansion of many business products and channels has continued, maintaining the growth trend over 23 years. In addition, the company has stepped up research and development efforts, efficiently innovated R&D based on market demand insights, and responded quickly to consumer trends.
Summary:
Investment advice: Considering the impact of changes in market competition and the increase in R&D expenses on performance, we lowered the 2024-2026 company's net profit forecast to 16.5/19.2/2.23 billion yuan (19.4/22.8/2.21 billion yuan before the 2024-2026 adjustment), and the latest closing price corresponding PE was 24/21/18 times, respectively, maintaining the “increase” rating.
Q1 Performance was in line with expectations. 2024Q1 achieved pre-tax profit of 399 million yuan, +25.2% YoY, after-tax profit of 339 million, +12.8% YoY, and total overall revenue of 309 million, +5.6% YoY.
We expect steady revenue growth in Q1. Among them, the disposable, APV and CBD businesses are growing rapidly, the impact of illegal products on the US market remains, sales of refillable e-cigarette products are still under some pressure, and the domestic market maintains a gradual recovery trend. The CBD business continues to benefit from improved delivery efficiency in local warehouses, enhanced consumer insight from declining channels, and improved product matrices. The APV business is being promoted through digital channels, and production expansion in overseas markets is progressing in an orderly manner.
Increase investment in R&D and consolidate the advantages of underlying technology. Adhering to the concept that investment in technology is the core gripper of product innovation, the company has now set up a research team of over 1,400 people. The R&D cost rate is expected to continue to rise in 2024 to consolidate the underlying technology platform and strengthen product innovation and development oriented by market demand. Currently, there are successful technical commercial application transformation in the fields of electronic atomization, CBD, HNB and beauty atomization.
An improvement in the market pattern can be expected, and the company may fully benefit. 1) On the domestic sales side, the National Tobacco Monopoly Administration announced on March 18, 2024 that a special inspection to regulate the order of the e-cigarette market will be carried out on April 1. It is expected that non-compliant products will be ordered and the concentration of concentration on compliant brands will be promoted. 2) On the export side, the US FDA's crackdown on illegal products continues to intensify. The UK banned the sale of disposable e-cigarettes from April 2025, which is conducive to a shift in the market pattern to strong brands and leading players who focus on compliance. The company's manufacturing, R&D, and compliance capabilities are industry-leading, or fully benefit from a new round of industry reshuffle.
Risk warning: Downstream demand recovery falls short of expectations; product marketing falls short of expectations.