Incident: Recently, the FDA's official website published the “FDA's Update on the Scientific Review of Juul Product Applications”, stating that the marketing refusal order issued to Juul in 2022 will be withdrawn, adjusted to a pending state, and the FDA will conduct a substantive review.
Lift the Juul marketing ban and follow the PMTA approval progress. The FDA issued a marketing ban to Juul on June 23, 2022, saying that its products lacked sufficient evidence to prove that they were harm-mitigating. This time, the FDA lifted the ban, mainly due to new case law and the FDA's review of the information provided by the applicant. After the ban is lifted, the application will resume pending processing, and the FDA will conduct a substantive review. Until the PMTA approval is completed, it is expected that Juul products can still be sold normally in the US. Furthermore, it is expected that the FDA will strengthen supervision of disposable products, which will benefit the increase in the share of recombustible products. In the long run, vaping e-cigarettes are based on harm-reducing and cigarette replacement properties, and the long-term development trend will not change.
Driven by diversified businesses, we are optimistic about the long-term growth of atomization leaders. As a leading global manufacturer of atomized e-cigarettes, SMORE International lays out various fields such as electronic atomization, non-combustion with heating, atomization for special purposes, medical atomization, etc. 1) In terms of electronic atomization, the company's disposable products equipped with new FEELM Max technology have achieved large-scale shipments, and its own brands have launched innovative products in the industry. Market share has steadily increased, and 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. The company's overseas business achieved steady growth in 2023. Sales revenue to corporate customers in the US, Europe and other regions was +8.2% and +8.9%, respectively. Domestic sales revenue to corporate customers was -92.7%, or bottomed out. Overall, 2024Q1 achieved net profit of 310 million yuan, an increase of 5.6% over the previous year, and returned to positive growth. 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 research and development, and is expected to launch differentiated products in various fields, cultivate new growth points, and look forward to the long-term growth of atomization leaders.
Investment advice: We expect the company's net profit to be 1,80/20.9/2.47 billion yuan in 2024-2026, corresponding PE is 22/19/16 times, respectively, to maintain a “buy” rating.
Risk warning: industry regulation has been tightened, market competition has intensified, and raw material prices have risen sharply