This report is read as follows:
The company and domestic core customers obtain licenses, and the annual quota of domestic core customers is higher than the three-year average. The focus of future domestic business is still the acceptance of the new GB products.
Summary:
Maintain the "overweight" rating. Due to the company's first-half results slightly lower than expected, the company lowered its adjusted net profit forecast for 2022-2024 to RMB 338, 42.1 billion, corresponding to the current market capitalization of 29.5X/23.8X/21.1X, respectively, maintaining the "overweight" rating.
The company's 22Q2 profit fell compared with the same period last year. The company expects 22H1's adjusted net profit to be Rmb13.22-1.554 billion, with the upper and lower limits corresponding to year-on-year growth of-53.8 per cent and-46.0 per cent respectively. Based on the central value of the expected range, 22Q2's adjusted net profit is about 937 million yuan (yoy-46.4%), an increase of 69.3% over 22Q1. The company's revenue declined in the first half of the year compared with the same period last year, on the one hand, because 21Q2 domestic customers are in a period of rapid channel expansion, with a high base, on the other hand, the company is affected by the suspension of production and the decline in the willingness to replenish inventory in channels, so it is speculated that the income is slightly lower than expected. In terms of expense rate, the company plans to increase R & D expenses at the beginning of the year, and management expenses and sales expenses have also increased significantly compared with the same period last year, indicating that the company attaches more importance to building long-term competitiveness than short-term performance.
The company and its domestic core customers obtain licenses. On July 20, 2022, the company announced that the wholly-owned subsidiary had obtained a production enterprise license issued by the State Tobacco Administration, which was valid from July 11, 2022 to July 31, 2023. According to the announcement and public information, the company's domestic core customers Yuejie, Xuejia and Magic Flute have also been licensed recently, which means that the company's domestic business can be carried out normally after the end of the transition period on September 30, 2022. Among them, Yueke, which accounts for 80% of the company's domestic business income in 2021, received an annual quota of 328.7 million tobacco bombs. The State Tobacco Administration said on its website that quota accounting mainly takes into account three factors: the nominal capacity of production equipment, the average actual sales volume in three years, and the utilization rate of equipment capacity in the industry. As a reference, the shipments of 2019, 2020 and 2021 Yueyue carved smoke bombs were 0.738, 2.126 and 5055 million respectively, with an average of 264 million.
The acceptance of the new GB products is still the focus in the future. The market is worried that the company's domestic customer quota will affect future revenue growth, but we believe that under the new rules that do not allow the sale of flavored tobacco cartridges, the future focus will be on the acceptance (conversion rate) of the new GB products. at the same time, the State Tobacco Administration also made it clear that quota accounting will take into account the orderly growth of enterprises. In terms of channel license issuance, steady progress has been made, with about 50,000 e-cigarette retail licenses planned as of early July. With the approval of the new GB products on the market, the company's domestic market shipments are expected to be revised.
Risk Tips: the risk of the company's ceramic atomized core products being subverted; the risk that core customers fail to pass PMTA; and the risk of FDA banning menthol atomized e-cigarettes in the United States.