Sinolink released a research report, maintaining a "Buy" rating for SMOORE INTL (06969). Without fully considering the contribution of HNB Business, the company is expected to have EPS of 0.22/0.26/0.37 RMB for 2024-2026. Considering the strong growth of the company's subsequent new business, a reasonable PE of 48x is given for 2025, corresponding to a Target Price of HKD 13.35.

Sinolink Securities' main points are as follows:

Reviewing why SMOORE previously underwent a double whammy.

Since 2021, the main reason for the continuous decline in the company's EPS has been the intensive introduction of relevant regulatory policies in China and the impact of illegal products overseas, which has put pressure on revenue growth. Additionally, changes in the product structure have dragged down the gross margin. Meanwhile, the company has increased R&D investment to cultivate new businesses, further affecting profitability. Against this backdrop, the market has concerns about the company's future growth, which has led to a downward shift in the previous PE center. However, the company's core advantages remain evident, laying the foundation for a future performance reversal. On one hand, it relies on continuous R&D investment to maintain the leading technological advantage of core products and deep binding with major clients; on the other hand, several of the company's OEM products have passed the USA PMTA review, further increasing customer stickiness.

The period of policy headwinds in the USA and Europe may come to an end, and the company's vaping cartridge and open electronic cigarette business is expected to benefit significantly.

In the USA, according to Euromonitor Statistics, the current market share of illegal products exceeds 70%. Since the beginning of this year, the USA has significantly intensified its crackdown on illegal products, while expectations for relaxing flavor restrictions are rising. According to estimates, the mid-term market size for legal cartridge products in the USA is expected to grow by 63%-299% compared to 2023. In Europe, through sorting, it can be found that various countries are gradually clarifying the timeline for the ban on disposable cigarettes, and the future share of cartridges and open products is expected to recover. According to estimates, the mid-term market size for cartridge products in Europe is expected to grow by 42%-60% compared to 2023, while the mid-term market size for open products is expected to grow by 52%-75% compared to 2023. Under this trend, the company's revenues in the USA and European markets will benefit not only from market expansion but also from changes in revenue structure, with profit margins expected to gradually rebound.

With the launch of new HNB products by major clients, the company is expected to welcome a second growth curve.

HNB is still in the penetration rate improvement bonus period globally. In 2023, the global market size for HNB reached 34.1 billion USD, with a CAGR of 23.1% from 2018 to 2023, and the policy uncertainty is relatively small. The company has been laying out in the HNB track for many years, with rich technical reserves. The company's major client, British American Tobacco, recently launched a breakthrough HNB new product glo in Serbia.

Hello, the improvement in product capability is quite evident, and it will be further promoted in core markets by 2025. In addition, as a core supplier for new tobacco products, the company is expected to benefit from British American Tobacco's rapid growth in the HNB field.

Based on the advantages of the vaporization platform, the new Business is expected to open up new long-term growth opportunities.

In recent years, while ensuring the leading technology advantage in vaporized e-cigarettes, the company has continuously increased investment in research and development directions such as special, Medical, and beauty vaporization. Relying on its own vaporization platform advantages, the company continuously iterates products in the special and beauty vaporization fields, and has accumulated a significant amount of differentiated leading technology in the Medical vaporization domain. Overall, the company's new categories, supported by platform advantages, are smoothly iterating products and are expected to gradually scale up, supporting the company's long-term growth.