Key investment points

British American Tobacco, a major customer of Smore International, launched a new HNB product 1) HNB: At the end of November, British American Tobacco (BAT) launched a new generation of heated tobacco equipment Glo Hilo and the high-end model Glo Hilo Plus in Serbia. On October 16, British American Tobacco announced on Capital Market Day that it will soon release a new generation of new HNB products, and that the new products will be greatly improved in terms of heating technology and usage experience compared to the previous generation Glo Hyper.

2) Nebulized e-cigarettes: On December 19, the FDA issued warning letters to eight online retailers and a manufacturer accusing these businesses of selling and/or distributing unauthorized flavored disposable e-cigarettes, including Geek Bar and Lost Mary.

HNB: New British and American products are expected to catch up with leading IQOS

Compare the new-generation IQOS iluma i series products under Pimo International:

1) Similar pricing: Converted to RMB, the pricing for split machines and all-in-one machines is relatively close.

2) The split machine is significantly smaller and more exquisite: The smoke bar (Easy Switch Pen) equipped with glo Hilo Plus slides out of the side, unlike IQOS products, so the overall design is more compact. Its weight of 92 g is also far lower than the 146g of the standard ILUMA I model, and it has a better grip and carrying experience.

3) Faster charging: glo Hilo can charge to 80% in 40 minutes, while IQOS iluma takes 90-135 minutes to fully charge.

Comparing Glo's previous generation of older products:

1) The warm-up time required for the first intake has been significantly reduced.

2) Using new heating technology, the smoke smell is more intense.

3) The session duration has been extended (that is, the time for a single continuous use after taking out the cigarette). Currently, it supports the standard mode of 5 minutes and 10 seconds, and the performance improvement mode of 3 minutes and 40 seconds.

We believe that the new generation of Glo Hilo products, whether compared horizontally with IQOS iluma i, the leading product in the market or the vertical comparison with the previous generation of older products, will have significant performance and user experience improvements, and we are optimistic that they will gradually expand into more markets and usher in volume in 25-26 years.

HNB: The market is expanding steadily, and Glo's share has more room to catch up1) HNB maintained double-digit growth: According to Eurovision, HNB terminal sales in 2023 were $34.1 billion (+12%).

2) Competitive landscape: According to Euromonitor, IQOS remained in the lead in 2023, accounting for 71%. Glo's market share was 15.6%. Compared with that, there is more room to catch up. Nippon Tobacco Ploomtech (6%) and Korea Tobacco's Lily (3.6%) each had single-digit market shares.

Vaporized e-cigarettes: Improved regulatory environment in Europe and the US, looking forward to flexible orders and changing trends in overseas regulations:

1) Due to environmental protection+youth protection considerations, Europe and Australia have continuously strengthened the supervision of disposable e-cigarettes over the past 24 years. 2) The US FDA has strengthened its enforcement against illegal e-cigarettes: In June '24, a special action team was set up with the Department of Justice to resolve the distribution issue of illegal e-cigarettes. Since then, several illegal e-cigarette products have been issued one after another, and illegal products are being gradually cleared.

SMOORE has introduced a new atomization program, which is expected to absorb orders:

In response to possible regulatory changes in the European market, on the one hand, the company strengthened technological breakthroughs in exchangeable products in advantageous fields, and released the next-generation solution FEELM PRO in June, using ultra-thin and high-explosive technology, which has a larger atomization area and stronger taste restoration and consistency; on the other hand, actively responded to the one-time ban in the European market and launched the TPD compliant 5000 port solution TANKER, and the TPD compliant 3200-port four-in-one solution QUAD SHOT Pro, which is expected to actively innovate and absorb products in compliance scenarios Flexible orders released after stricter regulations.

Profit forecasting and valuation

The new HNB product released by the core customer is expected to perform well. Combined with the FDA's continuous strengthening of enforcement against the illegal sale of flavored disposable e-cigarettes in the early stages, SMOORE International's R&D strength is strong and is expected to benefit. We expect revenue of 12.067 billion, 13.446 billion, and 16.263 billion, year-on-year growth of +8%, +11%, and +21% year-on-year, and net profit to mother of 1.328 billion, 1.813 billion, and 2.462 billion, or -19%, +36% year-on-year. The current market value is 47.88X, 35.08X, and 25.83X for 24-26 PE, maintaining a “buy” rating.

Risk Alerts

Policy impact intensifies, customer expansion falls short of expectations, promotion of new technology falls short of expectations, industry competition intensifies