According to the Futu Securities app, AXA has released a research report stating that it maintains a 'buy' rating for Smoore Intl (06969) with a target price raised to HKD 10.7. Smoore's revenue for the first half of 2024 was 5.03 billion, a 1.7% year-on-year decrease, with a net income of 0.68 billion, a 4.8% year-on-year decrease. The gross margin is 38%, up 1.8 percentage points year-on-year, and the net margin is 13.6%, down 0.4 percentage points year-on-year. Despite the contraction of OEM business, its own brands are thriving. With clearer policy direction, the bank believes in the company's prospects. However, considering the short-term increase in expenses, the bank has lowered the 2024 performance while raising the 2025 and 2026 performances, expecting a net income of 1.65/1.9/2.1 billion yuan for 2024/25/26, corresponding to an EPS of 0.29/0.34/0.38 Hong Kong dollars.

Anxin International's main points are as follows:

The revenue of the APV products has surged.

In the first half of 2024, the company's APV product revenue reached 1.11 billion, a 72% year-on-year increase. The company continues to cultivate the European and American markets, with revenue in the European market increasing by 88% year-on-year and the US market also achieving a 20% growth. With precise insights into user demand, the group's XROS iteration XRO4, launched in the first half of the year, has once again become a market hit product. The group's own brand, VAPORESSO, continues to gain market share in the open product field and has become a leading brand in the market.

A turning point in European policies, bringing about a resurgence of pod-mod opportunities.

In the first half of 2024, the 2B business revenue in Europe and other markets reached 1.97 billion, a 16% year-on-year decrease. This is mainly due to the gradual strengthening of European government regulations on non-rechargeable and non-replaceable disposable products, leading to a resurgence in demand for pod-mod products. The company's pod-mod product orders have been improving quarter by quarter, and the newly launched pod-mod products will also drive business revenue growth in the second half of the year.

Accelerated PMTA approval in the US market.

In the first half of 2024, the company's 2B business in the United States had revenue of 1.86 billion, a year-on-year decrease of 9.8%. Currently, Smoore's services have gained the most PMTA certifications for customers in Japan Tobacco, NJOY, and a small part of British American Tobacco's products, and NJOY's menthol products have been certified for the first time. Benefiting from the strengthened enforcement efforts of the FDA, disposable products have improved quarter by quarter, and second quarter revenue has increased by 6% compared to the first quarter.

The domestic market has bottomed out and rebounded.

In the first half of 2024, the company's 2B products had revenue of 0.09 billion in China, a year-on-year increase of 41%. The bank believes that the domestic compliance market should have bottomed out, and there has been a recovery since the second half of last year. However, the future development still depends on policy changes. In the short term, there is no significant room for improvement.

Continue to adhere to R&D investment.

In the first half of 2024, the company's R&D expenses were 0.76 billion, accounting for 15.1% of revenue, a year-on-year increase of 3.1 percentage points. R&D investment in aerosol medical and aerosol beauty products increased, with 0.18 billion invested in medical and beauty R&D in the first half of the year, a year-on-year increase of 63%. R&D investment in electronic cigarettes will continue to increase in the short term. In the first quarter of 2024, the MOYAL Lan Zhi brand and the first-generation aerosol beauty product solution were launched. The development and production of drug delivery devices for asthma and COPD are proceeding as planned.

Gross margin improvement, increased sales expenses.

In the first half of 2024, the gross margin was 38%, an increase of 1.8 percentage points compared to the previous year. The main reasons for the rebound in gross margin are 1) an increased proportion of higher gross margin own brands, and 2) cost reduction and efficiency improvement. Sales expenses in the first half of the year were 0.76 billion, a year-on-year increase of 70%, mainly due to increased market investment in own brands and beauty products. Management expenses were 0.34 billion, a year-on-year decrease of 27%, mainly due to cost control. As a result, the net margin has slightly decreased compared to the same period last year.