Summary of Smoore International Conference Call Company Overview - **Company**: Smoore International - **Fiscal Year**: 2024 - **Revenue**: 11.8 billion CNY, a year-on-year increase of 5.3% [3] - **Gross Margin**: 37.4%, down from 38.7% in 2023 [3] Key Points Financial Performance - **Gross Margin Decline**: Slight decrease attributed to rapid growth in low-margin ODM business, while self-branded business share is expected to support future margin growth [2][3] - **Sales Expenses**: Increased significantly to 919 million CNY, primarily for overseas channels and beauty business expansion in China [2][3] - **Net Profit**: Pre-tax profit decreased by 14.5% to 1.65 billion CNY due to increased sales and tax expenses [3] Market Dynamics - **European Market**: Ban on disposable e-cigarettes in several countries is expected to drive the development of refillable products [4] - **US Market**: Stable performance of closed products, but a 2.4% year-on-year decline due to customer payment capacity issues [4] - **Chinese Market**: Low base but a 25% year-on-year growth, with limited short-term expectations [4] Business Developments - **Collaboration in Medical Field**: Progress in nebulized medical devices for pulmonary hypertension treatment, with self-developed drug combination products expected to launch by late 2020 or early 2021 [5] - **ECS Business Growth**: Anticipated significant development phase in ECS (Electronic Cigarette Supply Chain) by 2025, with increasing revenue and profit contributions [6] Regulatory Environment - **US FDA Regulations**: Strict regulations impacting HNB (Heated Not Burned) market; first-generation products approved, while others require PMTA approval [12] - **Compliance Opportunities**: Stricter enforcement against non-compliant products in the US provides opportunities for compliant customers [19] Strategic Responses - **Differentiation Strategy**: To counteract profit pressure from the trend towards larger pod products, Smoore is launching innovative products in the US and Europe and empowering local distributors [8] - **Investment in Low-Risk Assets**: Growth in non-current assets due to increased fixed assets and adjustments in financial product allocations [10] Future Outlook - **2025 Revenue Growth**: Expected high single-digit growth driven by HNB products entering more markets and continued growth in self-branded and ODM businesses [23][24] - **Profitability Expectations**: Anticipated stable profit margins despite increased R&D investments and long-term incentive plan amortization [26] Additional Insights - **Market Share Gains**: Smoore's self-branded products have outpaced industry growth due to increased market share and technological advantages [9] - **Impact of Tariffs**: The 35% tariff on Chinese products has a minimal impact due to preemptive establishment of Southeast Asian production bases [30] This summary encapsulates the key insights from the conference call, highlighting Smoore International's financial performance, market dynamics, strategic initiatives, and future outlook.

Key Points Company Overview - **Company Name**: SMOORE - **Established**: 2009 - **Industry**: Physical Vaporization Technology Solutions - **Revenue**: 5 billion CNY (50 billion RMB) in H1 2024, down 1.7% - **Net Profit**: 680 million CNY (6.8 billion RMB) in H1 2024, down 4.8% [1] Business Segments - **2B Business**: 78% of revenue, providing components and design & manufacturing services for international tobacco companies like British American Tobacco, Japan Tobacco, and Philip Morris International [2] - **2C Business**: 22% of revenue, selling open system vaporizers, special purpose vaporizers, and free brand products [2] Industry and Market Dynamics - **Policy Changes**: The industry has been affected by policy changes in the past few years, but policy uncertainty has decreased [2] - **Domestic vs. International Revenue**: Domestic revenue has decreased to a small percentage, with the majority of revenue coming from the US and Europe [2] - **Product Categories**: Four main categories: disposable e-cigarettes, reusable e-cigarettes, open system vaporizers, and heat not burn (HNB) products [2] Regulatory Environment - **China**: Policy is currently aimed at driving out non-compliant companies and products, focusing on market compliance [3] - **Global Enforcement**: Many countries are increasingly cracking down on non-compliant products [3] - **US PMTA**: The process is lengthy, strict, and costly [3] - **EU GDP**: Easier process after providing specific content reports [3] Market Trends - **Shift to Disposable Products**: The shift to disposable products has led to increased regulation and potential bans in some regions [4] - **Profit Margins**: Disposable products have a lower profit margin (18%), while reusable products have a higher margin (40%) [4] - **Japanese HNB Market**: Expected to grow in 2025 due to patent settlement [5] - **Market Share**: Flyco International's iQOO holds a 70% market share in the HNB market [5] Technology and Innovation - **Patents**: Over 3,800 patents applied for in 2023, with significant R&D investment [6] - **Ceramic Core Technology**: Leading in the market, providing a deep technical barrier [6] - **Product Innovation**: Continuous innovation in open system vaporizers and HNB products [6] Financial Projections - **Revenue Projections**: 14 billion, 17 billion, and 24 billion RMB for 2024, 2025, and 2026 respectively [7] Risks - **Regulatory Risks**: Industry policy and regulatory changes [7] - **Competition**: Risk of technological breakthroughs by competitors [7] - **Product Approval**: Risk of product authorization failure [7] - **Exchange Rate**: Currency risk [7] - **Product Replacement**: Risk of product substitution [7] - **New Business**: Risk of new business development not meeting expectations [7]

Key Points Company and Industry Overview 1. **Company Overview**: The company in focus is engaged in the traditional tobacco industry, with a significant presence in the H&B (Heat Not Burn) segment. The company also has a growing interest in the H&B market and has been actively developing new products in this area. 2. **Industry Overview**: The industry is currently experiencing regulatory changes, particularly in the H&B segment, with a trend towards increased regulation and compliance. The H&B market is expected to grow significantly due to its potential as a substitute for traditional cigarettes. Key Points on Company's Strategy and Performance 3. **Board Chairman's Equity Incentive**: The board chairman has been granted a 61 million share equity incentive with a performance target of achieving an average market capitalization of HKD 30 billion, 40 billion, and 50 billion over a 25 to 30-year period, corresponding to 30%, 60%, and 100% of the equity incentive, respectively. This demonstrates the management's confidence in the company's future prospects. 4. **Valuation**: The company is currently undervalued, with a market capitalization of around HKD 60 billion and net cash of approximately HKD 10-15 billion. The company has also been actively repurchasing shares. 5. **Market Trends**: The H&B segment has faced regulatory challenges in both China and overseas markets, leading to a significant decline in revenue and profit expectations. However, the company expects a recovery in this segment as regulatory trends become clearer and compliance becomes more important. 6. **H&B Market**: The H&B market is expected to grow significantly, with a global market size of approximately USD 40 billion and a historical growth rate of double-digit percentages. The company has a strong position in this market, with a 15% share and a strong competitive advantage due to its early entry and technological barriers. Key Points on H&B Segment 7. **H&B Market Size and Growth**: The global H&B market is expected to grow significantly, with a market size of approximately USD 40 billion and a historical growth rate of double-digit percentages. The company has a strong position in this market, with a 15% share and a strong competitive advantage due to its early entry and technological barriers. 8. **H&B Product Advantages**: The company's H&B products have several advantages, including faster charging speed, higher heating efficiency, and a more portable and refined design compared to competitors. 9. **Regulatory Changes**: Regulatory changes in the H&B market are expected to become clearer and compliance will become more important. The company expects a recovery in the H&B segment as regulatory trends become clearer and compliance becomes more important. Key Points on Future Growth 10. **New Growth Drivers**: The company is exploring new growth drivers, including medical and beauty H&B products, as well as free brand APV. These areas are expected to contribute significantly to the company's future growth. 11. **Research and Development**: The company has been investing heavily in research and development, with a focus on traditional tobacco products and H&B products. This investment is expected to contribute to the company's long-term competitiveness and growth.

Industry and Company Analysis Key Points: 1. **Industry Overview**: - The industry is focused on heated tobacco products (HTP), including IQOS and other alternatives. - The market is experiencing rapid growth, with the H&B market reaching $34 billion in 2023 and expected to double in size over the next 3-5 years. - The market is dominated by IQOS, with a 15-16% market share, but there is significant potential for growth and competition. 2. **Smart International**: - Smart International is a key supplier to major tobacco companies and has a strong position in the HTP market. - The company has faced challenges due to the decline in the Chinese market and the rise of illegal products in the US and Europe. - Smart International is investing heavily in research and development to maintain its competitive advantage and develop new product categories. 3. **Glow Halo Product**: - Glow Halo is Smart International's new H&B product, offering several advantages over competitors like IQOS. - The product has a faster heating time, better heat distribution, improved portability, and competitive pricing. - The company expects Glow Halo to replace older products and capture a significant market share. 4. **Market Dynamics**: - The Chinese market is expected to recover as the government relaxes restrictions on flavored products. - The US market is facing increased regulation and enforcement against illegal products, which could benefit Smart International. - The European market is experiencing a shift towards alternative product formats, which could also benefit Smart International. 5. **Future Outlook**: - Smart International is targeting significant growth in the H&B market, with potential for revenue to triple over the next few years. - The company is also exploring new product categories, including medical, beauty, and hemp-based products. - The company's long-term growth prospects are strong, driven by its strong position in the HTP market and its commitment to innovation.