The company's recent situation
Recently, we invited the company's management to attend the CICC 2024 Mid-Term Strategy Meeting to have in-depth exchanges on the company's current situation and future development strategies that the market is concerned about. We expect that with the strengthening of regulations in Europe and the US, improving sales of new products, and continuing strong overseas demand, the company's subsequent growth in various categories of e-cigarettes is expected to improve steadily, the global market share is expected to increase, and new businesses such as heating without burning (HNB), atomized beauty, and medical care are also expected to gradually usher in a harvest period, opening up a medium- to long-term growth ceiling.
reviews
1. With the development of new products and the improvement of localized operation capabilities, the growth of various categories of e-cigarettes is expected to improve steadily. We expect that 1) one-time: demand for disposable terminals in overseas multi-market markets will remain strong, and the company's disposable products are expected to continue to grow as major customers promote new products and acquire new customers smoothly; 2) APV and THC: with the strengthening of new products, optimization of product matrices, and improvement of overseas local teams and channels, our own brand APV is expected to continue to grow rapidly and THC growth is expected to recover; 3) Exchange type: long-term and deep strategic cooperation between the company and major customers such as Vuse Alto, and the supply price is expected to remain stable, and the supply price is expected to remain stable, and the high base and illegal products disrupt illegal products in the short term or under pressure, 2H24 is expected to stabilize and improve.
2. The strengthening of overseas e-cigarette regulations is beneficial to increasing the medium- to long-term share of leading companies such as Smore. 1) Europe: The UK plans to completely ban the sale of disposable e-cigarettes from April 2025, and subsequent sales or restrictions on e-cigarette products such as non-rechargeable or refundable e-cigarette products. According to the General Administration of Customs, exports of disposable e-cigarettes to the UK have declined significantly since March, and exports of exchangeable products have resumed rapid growth; 2) US: Currently, many states in the US have passed e-cigarette product registration laws. Each state can refer to the FDA's PMTA review to determine the state's e-cigarette product white list and regulate the regulatory system for products and channels, etc., which is expected to help e-cigarette brands grow better. We believe that with the advancement and strengthening of overseas regulations, the share of illegal products and disposable e-cigarettes is expected to decline in the future. As a leader in R&D and manufacturing capabilities and multi-category compliance management, the company is expected to continue to benefit from regulatory standardization, and work with major customers to increase its global share in the medium to long term.
3. The new business is expected to usher in a harvest period. I am optimistic about the future of the company's collaborative growth in multiple businesses as a global atomization technology leader with leading R&D advantages. We believe that the company insists on R&D investment to protect medium- to long-term growth. We expect the company to invest more than 4.5 billion yuan in R&D in the future. 1) HNB: According to Frost & Sullivan, the global HNB factory market size in 2028 is about 19.42 billion US dollars, corresponding to 18% CAGR in 2023-28. The company continues to forward-looking research and development of innovative heating technology, which is expected to provide a differentiated user experience. In the future, it is expected that it will cooperate smoothly with major overseas customers and become a new pillar of medium- to long-term growth; 2) Nebulized beauty and medical treatment: The company launched the “Lanzhi” atomized beauty product solution in March. C-side and B-side sales are expected to advance simultaneously. The development process of nebulized drug delivery products for the treatment of COPD and asthma is progressing smoothly, and the subsequent nebulized medical business is expected to gradually usher in a harvest period.
Profit forecasting and valuation
The profit forecast remains unchanged, and the current price corresponds to 31/26 times P/E for 24/25. Maintaining an outperforming industry rating, the new business is expected to be successfully built and has broad development prospects. The target price was raised 47% to HK$11.5, corresponding to 41/34 times P/E in 24/25, with 20% room for growth.
risks
Policy and regulatory risks, customer dependency risks, technical risks, exchange rate fluctuations.