On the 18th, the company's high-end atomization technology brand FEELM officially launched a new generation of ultra-thin electronic atomization solution "FEELM Air", realizing three major technological innovations and seven revolutionary experience breakthroughs, and realizing iterative upgrades in multiple dimensions such as adaptability, safety and experience. It is not only expected to realize the cooperative relationship with large customers and attract more high-quality customers, but also highlights the company's R & D genes. Independent iteration is expected to lead the industry technology trend again, tamping the leading position. The company announced on the 21st that the total profit and comprehensive income of the Group in 2021 are expected to be 50.24-5.553 billion yuan (YoY+109%-131%), and the adjusted net profit of the Group is 51.80-5.709 billion yuan (YoY+33%-47%), which is in line with expectations as a whole.

21Q4 performance growth is under pressure, which is expected to be related to the rapid expansion of 21H1 brand channels, the overall pressure on the consumer environment and the transition period of e-cigarette regulation. According to the company announcement, the adjusted net profit of 21Q4 Group is expected to be 9.6-1.48 billion yuan, a year-on-year change of-33% Mustang 4%, and the operation is slightly under pressure. we think it may be related to the following three major factors: the H2 channel destocking pressure caused by the accelerated expansion of 121H1 brand channels. 2 under the influence of the epidemic, residents' consumption capacity and willingness are under pressure, and the demand for e-cigarettes as optional consumer goods is not as expected. According to the monthly performance survey of Landong new consumer e-cigarette shopkeepers, more than 50% of shopkeepers' sales declined month-on-month from October to December. (3) the draft of the national standard and management measures for e-cigarettes has been issued one after another. due to the uncertainty of many factors, such as the growth rate of industry demand, whether the products can meet the standards, whether they can obtain licenses and whether the competition is intensified, the willingness to prepare goods has been reduced.

FEELM Air achieves 3 major technological innovations + 7 revolutionary breakthroughs, and active iteration is expected to lead the industry technology trend again. 1 atomization core: a new generation of bionic film ceramic core is introduced, the thickness of the film is reduced from 80 μ m to 2 μ m, and the thickness of the whole ceramic substrate is only 3.5mm, which is 22% thinner than that of the previous generation, and realizes three major technological innovations: bionic materials, nanotechnology and microporous structure. 2 smoking set design: the overall thickness is reduced to 7.8mm easy to flat suction nozzle design, using cold forging seamless technology to create a high-strength shell, the design retains Waterdrop Inc. breathing lamp, equipped with a vibration motor to enhance the interactive feeling of each suction. 3 overall plan: 80% increase in damage reduction, 33% increase in taste reduction rate, 237% increase in leak-proof performance, 13% increase in energy efficiency compared with the previous generation, brand-new shock wave mode (ultra-low energy consumption is equivalent to two suction ports), industry first fast charge (suction for 8 hours after 10 minutes of charging), equipped with MEMS sensitive sensor (air flow switch control is more sensitive, anti-misstart). We believe that the iteration of the new technology is particularly important in the following three aspects: 1 adaptability: the obvious thinning of the overall ceramic matrix thickness can not only enhance the sense of design, but also improve the adaptability with more high-quality customers. 2 Security: for the global high-quality major customers, the importance of security is highlighted, and the enhancement of the harm of new technologies is expected to significantly reduce the comprehensive cost of applying for PMTA, which is expected to attract more high-quality customers while strengthening the stickiness of cooperation with existing major customers. 3 sense of experience: the e-cigarette industry is a product-driven industry, consumers pay more attention to the smoking experience, and the new technology brings the sensory experience upgrade of taste and interaction, which is expected to help customers to get more consumers' favor.

Profit forecast and investment advice: according to the company announcement and the uncertainty of short-term operation during the transition period of domestic regulation, we slightly downgrade the company's profit forecast. It is estimated that the net profit of 21-23 year-on-year return to the company will be 53.3 billion yuan (70.7 billion yuan in the previous year), a year-on-year increase of 122%, 22%, 33%, and 21 days, corresponding to a 22-year PE of 28X. Maintain the highly recommended-A rating.

Risk hints: policy regulatory risks, technology-related risks, and risks that penetration increases less than expected.