The core business is recovering steadily, and the new business is progressing smoothly, maintaining the “buy” rating

Fueled by a recent recovery in Hong Kong stock sentiment due to overseas interest rate cuts, the stock price of SMOORE International, a leading atomization equipment company, is once again boosted. We believe that the company's traditional vaping e-cigarette business is recovering steadily, and 24H2 is expected to usher in an inflection point in business. At the same time, businesses such as heating and non-combustion and medical atomization are progressing steadily as medium- to long-term strategies, and the long-term growth logic is smooth. We maintain our profit forecast. The company's net profit for 24-26 is 1.698/2.01/2.393 billion yuan respectively, and the corresponding EPS is 0.28/0.33/0.39 yuan, respectively. Referring to the average PE value of comparable companies in 24, taking into account: 1) the company continues to strengthen product innovation and category expansion, and continues to consolidate its R&D and management advantages; 2) The compliance market value is outstanding after the implementation of national regulatory policies, and long-term value attributes are prominent; 3) New business progress is expected to smoothly open up a new growth curve. The valuation premium was raised to give the company 40 times PE in 24 years, with a target price of HK$12.37 (previous value of HK$11.31), maintaining a “buy” rating.

Industry: Overseas regulatory frameworks are gradually being improved, and the vaping e-cigarette market space is still broad

1) The US e-cigarette regulatory policy sends positive signals: On the one hand, on June 21, the FDA approved the launch and sale of 4 menthol e-cigarettes under NJOY, passing flavored cigarettes for the first time; on the other hand, the FDA continues to strengthen enforcement on the non-compliant e-cigarette market, which is beneficial to the expansion of the compliance market. 2) The European e-cigarette regulatory framework has been gradually improved. The United Kingdom and other countries have announced that they will ban the sale of disposable products. Demand for traditional disposable electronic atomization products is shifting to new closed and open products. According to Sullivan data, the global closed/open e-cigarette market reached 43/17.9 billion US dollars in 2023, and the compound growth rate is expected to be 13.9%/2.4% in 2024-2028, respectively. The global electronic atomization industry maintains a healthy growth rate, and the company is expected to continue to benefit as a leading supplier in the industry.

Core business: It is expected to usher in an inflection point. Long-term value attributes are highlighted by business segment: 1) Since 24Q2, exchangeable products have gradually ushered in revenue inflection points. Among them, exchangeable US Q2 revenue increased 6.1% month-on-month and 6.5% year-on-year; European and other market revenue increased by about 93.2% month-on-month, up 22.5% year over year; 2) Open products continue to develop through private brands, and 24H1 revenue of 1.116 billion yuan (yoy +71.9%). Looking ahead, benefiting from strengthened overseas enforcement and product updates, 24H2 exchangeable product revenue is expected to continue to improve, and the private brand business is expected to grow steadily, driving revenue recovery while optimizing the business structure. I am optimistic that the core business 24H2 will usher in an inflection point in operation.

New business: Continued R&D investment and smooth progress, which is expected to open up a new growth curve and continue to drive R&D innovation: 1) Continuous R&D investment in the field of heating and non-combustion, with considerable room for growth; 2) In the medical atomization field, the development and production layout of several drug delivery devices for asthma and chronic obstructive pulmonary disease was completed in the first half of the year, as well as the development of more than a dozen pharmaceutical preparations. The formulations and devices were approved by European and American pharmaceutical regulatory agencies; 3) In the field of beauty atomization, the company launched the MOYAL Arashito fog light beauty device for retail customers in the first half of the year. The new category layout is expected to open up a new growth curve.

Risk warning: Industry policies are being tightened, industry competition is intensifying, and downstream demand falls short of expectations.