1Q24 results are in line with our expectations
The company announced 1Q24 results, and net profit after tax reached 340 million yuan, an increase of 12.8%, in line with our expectations. We expect that the company's overseas APV, CBD, disposable and other products are expected to grow rapidly in 24 years, overseas exchange-type shipments may be under pressure in the short term, and new products such as atomized beauty, medicine, and HNB are also expected to open up the ceiling for subsequent growth.
Development trends
The revenue side is expected to grow steadily in 1. The one-time increase in scale effects may drive a year-on-year improvement in gross margin. On the Q1 revenue side, we expect: 1) Overseas: The company's disposable products in overseas markets are expected to continue to grow rapidly, and APV and CBD revenue and profits are expected to improve simultaneously as new products are promoted, and the company's cooperation with major customers such as Vuse Alto is stable. The return revenue may decline due to high base and illegal product disturbances, etc.; 2) Domestic: As domestic market base declines and illegal product regulations are strengthened, etc., domestic revenue is expected to improve several times in the medium to long term. On the gross profit side, we expect the company to have strong orders for one-time products such as Q1, and Q1 profitability is expected to improve as capacity utilization increases.
2. The strengthening of supervision in the e-cigarette industry at home and abroad has helped compliance leaders such as SMOORE continue to grow. 1) Domestic market: 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”. Q2 will focus on mapping out the illegal operation of e-cigarettes by non-certified entities, the compliance operation of certified retailers, etc. We believe that as the share of illegal products declines, leading companies such as Smole will operate or usher in improvements; 2) Overseas markets: Currently, the US FDA's crackdown on illegal e-cigarettes continues to intensify, and we believe that subsequent refills, APV and other products may gradually be accepted once. E-cigarette demand, leading companies with leading manufacturing capacity and compliant management are expected to benefit.
3. Optimistic about the company's strong competitive advantage as a global leader in atomization technology. The existing business is expected to continue to grow, and the new business is expected to enter the harvest period. We expect the company to develop collaboratively in multiple categories over the past 24 years. 1) In the existing business: overseas demand for APV, disposable and other products will continue to be strong, and the launch of differentiated new technologies is expected to drive rapid revenue growth; special-use atomization is expected to achieve accelerated growth with overseas localization channel construction and product matrices; overseas recombinant follow-up is expected to benefit from the continued growth of FDA enforcement and disposable policies and regulations; 2) In the new business: the company launched the “Lanzhi” first-generation nebulized beauty product solution in March, combined with nebulized medical treatment, chronic obstructive pulmonary disease, and asthma drugs speed As it progresses, HNB's new technology is also expected to be commercialized in the future, and R&D investment is expected to gradually enter the harvest period.
Profit forecasting and valuation
The profit forecast for 24/25 remains unchanged. The current stock price corresponds to 23/18 times P/E in 24/25, keeping the outperforming industry rating and target price unchanged at HK$7.8, corresponding to 25/20 times P/E in 24/25, with 10% room for growth.
risks
Policy and regulatory risks, customer dependency risks, technical risks, exchange rate fluctuations.