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On the evening of August 3, Smoore International Holdings Limited announced that its two wholly-owned subsidiaries, Shenzhen McWeill Technology and Shenzhen McBrother Technology, received licenses for tobacco monopoly production enterprises. Since the company obtained the production license on July 20, three subsidiaries of Smoore International Holdings Limited have been granted production licenses.

Comments:

Domestic license carding: at present, more than 100 domestic production enterprises have been licensed, of which 11 e-cigarette brands have obtained brand licensed production licenses, basically covering mainstream e-cigarette brands. Judging from the production quota disclosed by RLX Technology Inc. (15.05 million tobacco sticks / 328.7 million cartridges per year / 6.1m disposable e-cigarettes), the quota is higher than the average of the past three years, about 70 per cent of 21-year sales. We believe that the domestic approval quota is relatively abundant, and the main uncertainty in the future lies in consumers' acceptance of the taste of the new GB standard, as well as the subsequent transformation and retention.

August may be an important observation window for domestic sales. YOOZ recently issued an announcement announcing that it will formally stop production of all non-national standard products from August, and the follow-up channel-end sales may provide reference for the interpretation of the domestic market. In the future, under the collection store model, the channel differences of brands will be erased, and the industry competition will completely enter into "products are king".

From the perspective of historical experience, product taste plays an important role for consumers to make purchase decisions and recognize brand value. However, it should be pointed out that in the past few years, the industry has insufficient experience in tobacco flavor flavoring, and tobacco flavoring requires a higher base for the extraction and separation of spices. Under the strong demand for product power, it is expected that the brand will further concentrate on the middle reaches of the head which have the advantage of flavoring.

Export differentiation accelerated + one-time volume, the company's share is expected to benefit. British American Tobacco PLC 22H1 atomized e-cigarette income of 590 million pounds, YoY+48.2%, cigarette bomb sales YoY+18.6% to 290 million. Vuse's market share in the top five markets in the world is 34.7%, compared with FY2021+1.2pct, the latest share of the US market (in the four weeks to June 18) rose from 35.1% to 35.5%, and the differentiation of Juul fell from 33.1% to 32.9%.

In May 22, British American Tobacco PLC launched the disposable atomization product Vuse Go in the UK. At present, the market share of disposable products is close to the second. According to the plan, 22H2 Vuse Go will expand at a high speed in Europe, and Smoore International Holdings Limited FEELM Max products are expected to meet the expansion.

There is still uncertainty, revise the profit forecast. Although British American Tobacco PLC VUSE product income shows strong growth, but its main driver comes from the unit price, the quantity growth is relatively limited, which is difficult to say positive signal for the mid-stream link. At the same time, the acceptance of the new national standard taste in the domestic market, the attitude of the American FDA towards menthol taste and the promotion of the global regulatory environment further magnify the uncertainty of the external environment. In order to reflect our prudent expectation of the market environment, we revise the company's profit forecast and estimate that the company's 2022-24 net return profit is 35.2 pound 6.11 billion yuan (the previous value is 3.84 pound 50.3 trillion), and the corresponding share price PE is 25.4 pounds 18.2 times. The DCF valuation gives the target price HK $22.60, corresponding to 33 times PE,2023 in 2022 and 24 times PE in 2022, maintaining a "strong push" rating.

Risk tips: supervision is stronger than expected, competition in the industry intensifies, and customer orders are lost.