Core views:

The FDA approved the sale of NJOY menthol-flavored e-cigarettes in the US for the first time. According to the US FDA website, the US FDA recently approved the first batch of menthol e-cigarettes. The 4 approved products came from NJOY, including retractable and disposable products. NJOY is an important customer of SMOORE.

Menthol passed the review, and concerns about Smore's policy abated. According to the US Centers for Disease Control and Prevention Foundation, as of December 31, 23, menthol flavors accounted for 27.8% of the US e-cigarette market and 61.0% of the US e-cigarettes. It is also a leading position in the US bullet exchange compliance market. It is also the main layout area for SMOORE's downstream customers. Menthol certification is expected to reduce corresponding policy concerns.

NJOY's main product has been reviewed, and SMOORE is expected to benefit. As the main supplier of NJOY, SMOORE has deep ties and stable cooperation. Mainstream products such as NJOY tobacco and menthol have all been reviewed. With Altria's financial and channel support behind it, terminal sales are expected to be boosted.

British American Tobacco MDO may be withdrawn. SMOORE's major customer British American Tobacco's menthol products previously received an MDO (marketing refusal order). Currently, in the appeal process, based on the approval of NJOY Menthol and the cancellation of JUUL's MDO, we anticipate that British American Tobacco MDO may be revoked.

For disposable non-compliant products, enforcement is expected to become stricter. According to the US Centers for Disease Control and Prevention Foundation, as of December 31, 23, disposable e-cigarettes accounted for 57.76% of the US e-cigarette market, but most of them have not passed the PMTA. Currently, state governments have successively increased strict controls on products banned by the FDA, and disposable flavors are expected to gradually come out under strong industry supervision.

Profit forecast and investment advice: Currently, overseas markets are stable and the domestic market is recovering. Future policies are expected to benefit compliant products, and businesses such as HNB and beauty atomization are expected to increase. The net profit for 24-26 is estimated at $17.4/21.5/2.55 billion, with a PE valuation of 30 times over 24, corresponding to a reasonable value of HK$9.39 per share (HKD exchange rate of 0.91), maintaining the “increase in holdings” rating.

Risk warning. Policy uncertainty; increased industry competition; illegal products fall short of expectations.