Summary of Smoore International and the New Tobacco Industry Update Company and Industry Overview - The report focuses on Smoore International and the new tobacco industry, particularly the electronic cigarette and cannabis vaporizer markets [1][4]. Key Points and Arguments - **Stock Price Movement**: Smoore International's stock price has increased due to two main factors: the upcoming launch of British American Tobacco's (BAT) second-generation product Hilo in Japan and the diminishing impact of equivalent tariffs on exports. The company primarily exports electronic cigarettes and cannabis vaporizers from Southeast Asia, where a 10% basic tariff exemption exists, mostly borne by customers [2][4]. - **Stable Business Performance**: Smoore's electronic cigarette and cannabis vaporizer businesses are performing steadily. The company plans to shift domestic production of cannabis vaporizers to overseas bases to further mitigate tariff impacts, indicating resilience and optimistic future prospects [1][4]. - **Growth Opportunities from Hilo**: BAT's Hilo product, expected to launch in mid-2025, presents new growth opportunities for Smoore. The long-term market potential is significant, with the HMT (new heating not burning technology) segment showing good growth prospects, primarily attracting traditional cigarette users [5][6]. - **Focus on Electronic Cigarettes and New Ventures**: Smoore will continue to focus on electronic cigarettes and related fields while actively expanding its own brands and medical-related businesses. The regulatory environment is improving, benefiting larger companies through industry consolidation and standardization [1][6]. - **Product Improvements with Glo Halo**: The new Glo Halo product has reduced heating time from 15 seconds to 5 seconds, enhancing user experience and competitiveness. This product is expected to increase market penetration [1][8]. Additional Important Insights - **Technological Advancements**: Glo Halo employs a new needle heating technology that improves heating uniformity, reduces burnt taste, and extends device lifespan while maintaining flavor quality [3][10]. - **Market Dynamics in Japan**: Japan has the highest penetration rate for HNB products globally, nearing 50%. The well-established consumer education and distribution channels make it a critical market for validating HNB product performance [12][13]. - **Pricing Strategy**: Smoore's pricing strategy for Glo Halo aims to compete directly with IQOS, positioning itself in the high-end market with retail prices around 580 yen, similar to IQOS's mainstream products [14][15]. - **Competitive Landscape**: In the U.S. market, PMI is leading the promotion of its IQOS products, with expectations of capturing 10% of the cigarette and HNB market share by 2030. Smoore's entry into high-value segments through equipment supply and technology development is noteworthy [16][17][18]. - **Management Confidence and Market Potential**: The management team shows strong confidence in the company's future, with significant market potential if sales targets are met, indicating substantial investment opportunities [7][6].

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.