Core Viewpoint - Smoore International (06969) experienced a significant decline in stock price following its interim results, with a drop of over 6% in early trading and a current price of 19.23 HKD, despite a revenue increase of 18.3% year-on-year [1] Financial Performance - The company reported a revenue of 6.013 billion RMB for the first half of the year, reflecting an 18.3% increase year-on-year [1] - Adjusted net profit for the period was 737 million RMB, a decrease of 2.1% year-on-year [1] - The overall profit for the period was 492 million RMB, down 27.96% year-on-year [1] - The interim dividend declared was 0.20 HKD per share, compared to 0.05 HKD per share in the same period last year [1] Analyst Insights - Bank of America noted that Smoore's performance was generally in line with expectations, predicting a slight improvement in annual revenue growth, but continued pressure on profit margins [1] - UBS reported that the decline in net profit was primarily due to increased stock-based compensation, higher sales and development expenses, and a rising tax rate [1] - Management expressed optimism for continued revenue growth in the second half, supported by favorable policies for e-cigarettes in the US and Europe, although short-term profitability will be impacted by increased R&D spending [1] - The company is preparing to launch its own products in the US, with specific financial results from new business segments expected to be reflected by 2027 [1] - UBS downgraded its earnings forecast for the company from 10% to 33% for the years 2023 to 2027, citing higher sales, marketing, and R&D expenses, and lowered the target price from 14 HKD to 13.11 HKD, maintaining a "sell" rating [1]

Investment Rating - The investment rating for the company is "Outperform the Market" [7] Core Views - The company's revenue for the first half of 2025 reached 6.013 billion HKD, representing a year-on-year increase of 18.3%, while adjusted profit slightly decreased by 2.1% to 737 million HKD [1] - The company is benefiting from the global trend towards regulatory compliance, with its vaping business recovering as expected [1] - The company plans to distribute an interim dividend of 0.20 HKD per share [1] Revenue and Profit Analysis - The company's To B business revenue increased by 19.5% year-on-year to 4.74 billion HKD, with European revenue growing by 38.0% to 2.73 billion HKD [2] - In the U.S., revenue was 1.5% higher at 1.89 billion HKD, while domestic revenue decreased by 6.1% to 120 million HKD [2] - The self-owned brand business revenue grew by 14.1% year-on-year to 1.27 billion HKD, with European revenue increasing by 15.1% [3] Long-term Growth Potential - The successful commercialization of HNB products and steady progress in vaping medical applications are expected to drive long-term growth [3] - The company launched high-end HNB products in Japan, with plans for nationwide expansion and entry into more key markets in the second half of 2025 [3] Financial Forecasts - The profit forecast for 2025-2027 has been adjusted, with expected net profits of 1.239 billion HKD, 1.822 billion HKD, and 2.565 billion HKD respectively, reflecting year-on-year changes of -4.9%, +47.0%, and +40.8% [4] - The diluted EPS is projected to be 0.20, 0.29, and 0.41 HKD for 2025, 2026, and 2027 respectively, with corresponding P/E ratios of 98, 67, and 48 [4]

Core Viewpoint - The company's 1H25 performance aligns with expectations, showing revenue growth but a decline in net profit, indicating a mixed financial outlook amid evolving market conditions [1][2]. Financial Performance - Revenue for 1H25 reached 6.01 billion, an 18.3% year-on-year increase, while net profit attributable to shareholders was 500 million, a 30.8% decline. Adjusted net profit after stock incentive expenses was 740 million, down 2.1% [1]. - The company declared an interim dividend of 0.2 HKD per share, with a payout ratio of 225.1%, significantly higher than the 38.7% in 1H24, indicating increased shareholder returns [1]. Market Trends - The ToB revenue grew by 19.5% to 4.739 billion, driven by strong performance in Europe and potential improvements in the U.S. market due to stricter regulations [1]. - In Europe, revenue surged by 38% to 2.73 billion, benefiting from regulatory changes that favored compliant companies [1]. - U.S. revenue increased by 1.5% to 1.89 billion, with expectations of continued improvement as enforcement tightens [1]. - Domestic revenue, however, saw a decline of 6.1% to 120 million [1]. Product Development - The ToC revenue rose by 14.1% to 1.274 billion, with significant growth in the APV segment, particularly in Europe, where new product launches are driving user conversion [2]. - The APV revenue in Europe and the U.S. was 1.07 billion and 170 million, respectively, with declines of 15.1% and 6.7% [2]. - The nebulization beauty segment experienced a remarkable growth of 2595% to 30.618 million, with over 10,000 C-end users and more than 100 B-end partnerships established [2]. Profitability and Costs - The overall gross margin remained stable, decreasing slightly by 0.5 percentage points to 37.3%. However, the net profit margin fell by 5.9 percentage points to 8.3%, and adjusted for stock incentive expenses, it decreased by 1.2 percentage points to 12.3% [2]. - Sales expense ratio increased by 0.8 percentage points to 8.2% due to heightened investment in self-owned brands, while R&D expense ratio decreased by 2.9 percentage points to 12% [2]. - Management expenses rose significantly by 15.5 percentage points to 22.2%, primarily due to increased stock incentive costs [2]. Growth Outlook - The HNB segment is expected to accelerate globally, with Glo Hilo's market share in Japan increasing by 1.5% during its sales period, indicating strong growth potential [3]. - The regulatory environment for vaping products in Europe and the U.S. is expected to lead to a more standardized industry, allowing the company to recover market share and continue growing [3]. - The company is also focusing on developing nebulization medical products and expanding its nebulization beauty segment domestically, which opens up additional growth opportunities [3]. Profit Forecast and Valuation - The company maintains its profit forecast and industry outperform rating, with a target price reflecting a 4% upside from the current stock price [3].

Core Viewpoint - UBS has downgraded the target price for Smoore International (06969) to HKD 13.11 and maintained a "Sell" rating due to a decline in mid-term net profit primarily driven by increased equity compensation, rising sales and development expenses, and a higher tax rate [1] Financial Performance - Smoore International's mid-term net profit has decreased, largely attributed to increased equity compensation and higher sales and development expenditures [1] - The company's management remains optimistic about revenue growth in the second half of the year, citing favorable policies for e-cigarettes in the US and Europe [1] Future Outlook - Short-term profitability is expected to be impacted by increased R&D spending as the company prepares to launch its own products in the US [1] - More specific financial results from new business segments such as heated tobacco, inhalation therapy, and beauty aerosol products are anticipated to be reflected by 2027 [1] Earnings Forecast - UBS has revised its earnings forecast for Smoore International for the years 2023 to 2027 down by 10% to 33%, reflecting higher sales, marketing, and R&D expenses [1]

Core Viewpoint - UBS report indicates that Smoore International's mid-term net profit has declined primarily due to increased equity compensation, rising sales and development expenses, and higher tax rates [1] Financial Performance - The management is optimistic about continued revenue growth in the second half of the year, supported by favorable e-cigarette policies in the US and Europe [1] - The company’s short-term profitability is still impacted by increased R&D expenses as it prepares to launch its own products in the US [1] Future Outlook - Management expects more specific financial results from new business segments such as heated tobacco, inhalation therapy, and beauty aerosol products to be reflected by 2027 [1] - UBS has lowered its earnings forecast for the company from this year to 2027 by 10% to 33%, reflecting higher sales, marketing, and R&D expenses [1] Target Price and Rating - The target price has been reduced from HKD 14 to HKD 13.11, while maintaining a "Sell" rating [1]

Core Viewpoint - UBS report indicates that Smoore International (06969) experienced a decline in mid-term net profit primarily due to increased equity compensation, rising sales and development expenses, and higher tax rates [1] Financial Performance - The management remains optimistic about revenue growth in the second half of the year, supported by favorable e-cigarette policies in the US and Europe [1] - The company’s short-term profitability is still impacted by higher R&D expenditures as it prepares to launch its own products in the US [1] Future Outlook - More specific financial results from new business segments such as heated tobacco, inhalation therapies, and beauty aerosol products are expected to be reflected by 2027 [1] - UBS has revised its earnings forecast for the company downwards by 10% to 33% for the years 2023 to 2027, reflecting increased sales, marketing, and R&D expenses [1] Target Price Adjustment - The target price for Smoore International has been reduced from HKD 14 to HKD 13.11, while maintaining a "Sell" rating [1]

Investment Rating - The investment rating for the company is "Buy" and is maintained [9] Core Views - The company achieved a revenue of 6.013 billion HKD in H1 2025, representing an 18% year-on-year increase. However, net profit was 492 million HKD, down 28% year-on-year, while adjusted net profit was 737 million HKD, a decrease of 2% year-on-year. The company also reported a share-based payment expense of 245 million HKD for H1 2025 and declared an interim dividend of 0.2 HKD per share, totaling approximately 1.24 billion HKD in dividends to shareholders [2][6] Revenue Analysis - The revenue growth in H1 2025 was primarily driven by the recovery of the vaping business. Specifically, the TOB (business-to-business) segment saw a 19% year-on-year increase, accounting for 79% of total revenue. Revenue from the TOB segment in the US, mainland China, Europe, and other regions showed varied performance, with increases of 1%, decreases of 6%, and increases of 38% respectively. The TOC (business-to-consumer) segment also grew by 14%, making up 21% of total revenue, with significant growth in mainland China at 2595% year-on-year [10] Profitability Analysis - The overall performance met the central expectations of the earnings forecast, with adjusted profits down 2% year-on-year. The decline in net profit was attributed to insufficient revenue and gross profit growth to offset rising expenses, including a significant increase in share-based payment expenses due to a stock incentive plan launched in late 2024. Additionally, distribution and sales expenses rose by 31% to 491 million HKD, and professional fees related to legal and compliance services surged by 820% to 140 million HKD [10] HNB Business Development - A significant milestone for the company in H1 2025 was the launch of Glo Hilo in collaboration with British American Tobacco. The product received positive consumer feedback during trials in Serbia and Sendai, Japan, with highlights including a close-to-tobacco flavor and reduced preheating time. The company plans to expand Glo Hilo across Japan in September 2025 and into more key markets later in the year. The company aims to continue investing in R&D for HNB products to maintain technological leadership and enhance customer adoption rates [10] Growth Potential - The company is optimistic about its growth potential in the global new tobacco trend. The vaping segment is showing signs of recovery, benefiting from regulatory shifts and increased market share among major clients. The HNB business has significant growth potential, especially considering the current market share of IQOS at over 70%. The industry is expected to continue growing at a double-digit annual rate, with ample room for penetration as the current global penetration rate is only about 6%. Long-term growth trends are also positive for medical vaping and special-purpose vaping [10]

Summary of the Conference Call on Smoore International Industry Overview - The global tobacco market is substantial, nearing $900 billion, but the traditional cigarette market is experiencing a slight decline with a compound annual growth rate (CAGR) of -0.2% over the past decade, excluding the Chinese market [2][3] - New tobacco products, including electronic vapor products, heated not burned (HNB) products, and oral nicotine pouches, are driving overall market growth [2] Key Points on New Tobacco Products - New tobacco products are categorized into three main types: electronic vapor products, HNB, and oral nicotine pouches [5] - Electronic vapor products saw rapid growth but have faced a downturn since 2021 due to tightening regulations [5] - HNB products, pioneered by Philip Morris in 2014, have experienced a slowdown in growth to mid-low double digits due to regulatory pressures in Europe [5] - Oral nicotine pouches have low penetration but are growing rapidly, maintaining high double-digit growth rates [5] Smoore International's Position and Strategy - Smoore International has a long history in the electronic vapor product sector and is currently focusing on the HNB segment [2][6] - Despite European regulatory impacts, HNB products are expected to maintain a growth rate of 10% to 15%, with potential boosts from market openings in the U.S. and China [6][7] - The Glo Halo product, developed in collaboration with major clients, is positioned to enhance market share due to its competitive advantages [2][6] Market Share Insights - The global HNB market is dominated by Philip Morris's IQOS, holding over 70% market share, while Smoore and its clients account for approximately 15% [2][6] - As new products are launched and iterated, the market share gap is expected to narrow [2][6] Financial Performance and Future Outlook - In the first half of 2025, Smoore's ODM business performed well, particularly in light of the European ban on disposable e-cigarettes [4][7] - HNB products are set to launch nationwide in Japan, a key market accounting for one-third of global HNB sales, following positive trial feedback [7] - The projected price-to-earnings (PE) ratios for 2025 to 2027 are 95x, 60x, and 42x respectively, indicating high valuation but justified by industry prospects and Smoore's R&D capabilities [4][7] Competitive Landscape and Future Trends - Currently, the three forms of new tobacco products do not compete directly, as they cater to different harm reduction needs [8] - Each product type offers unique value propositions, ensuring their coexistence and collective contribution to market growth [8]

Summary of Conference Call Notes Industry Overview - The Japanese HNB (Heated Not Burned) market has a global penetration rate of 43% in 2024, significantly higher than other countries, indicating substantial growth potential in the new tobacco market [1][3] - The global traditional cigarette market has an HNB penetration rate of less than 6%, highlighting the early development stage of this category [1][8] Market Dynamics - The Japanese new tobacco market is characterized by a "one leader, two strong" structure, with Philip Morris International (PMI) holding a 70% market share, followed by British American Tobacco (BAT) and Japan Tobacco with 15-16% and 14% respectively [1][4] - BAT has shifted some resources from its Hyper product line to Hilo, which is positioned in the high-end market, competing directly with PMI's IQOS [1][10] Product Launch and Promotion - Smoore International launched its new product in Miyagi Prefecture, a region with a high HNB penetration rate of 56%, facilitating product education and promotion [1][5] - The new products are prominently displayed in major convenience stores in Sendai, indicating successful initial promotion [1][5] Product Differentiation - Major brands in Japan have distinct product design philosophies: Japan Tobacco's Pro series uses low-temperature heating, PMI's IQOS is mid-range, and BAT's GLO Helo series targets high-temperature, high-volume consumers [1][6] Global Market Comparison - Other countries lag in HNB development, with penetration rates of 20% in Italy, 18% in South Korea, 16% in Ukraine, and 14% in Poland [1][7] Sales and Distribution - Convenience stores like Seven Eleven have effectively distributed tobacco products, with BAT's PROOM series occupying prime shelf space [1][9] Future Plans and Market Strategy - Smoore plans to fully launch its new products in Japan on September 1 and enter the European market by the end of the year, aiming to validate repurchase rates and consumer acceptance [1][14] - BAT aims to increase its new tobacco revenue share to over 50% within the next decade, reflecting a positive market outlook [1][18] Regulatory and Competitive Challenges - The high entry barriers in the new tobacco industry, coupled with recent regulatory changes in China prohibiting HNB production, pose significant challenges for new entrants [1][17] - Investors should monitor product sales feedback and industry dynamics, as Smoore's competitive advantage is supported by high industry barriers and BAT's brand channel support [1][2][15] Investment Outlook - Investors are encouraged to evaluate the new tobacco industry trends and competitive landscape, as there are positive signs in the Japanese market within a short promotional period [1][20]

Core Viewpoint - The company reported a revenue of 6.013 billion yuan for the first half of 2025, marking an 18.3% year-on-year increase, while net profit decreased by 28.0% to 492 million yuan [1] Financial Performance - Revenue for H1 2025 reached 6.013 billion yuan, up 18.3% year-on-year [1] - Gross profit was 2.244 billion yuan, a 16.6% increase, with a gross margin of 37.3%, down 0.5 percentage points [1] - Net profit fell to 492 million yuan, a decrease of 28.0%, while adjusted net profit was 737 million yuan, down 2.1% [1] - Adjusted net profit margin stood at 12.3%, down 2.5 percentage points year-on-year [1] Segment Performance - Self-owned brand revenue from electronic vapor products and vapor beauty products was 1.274 billion yuan, up 14.1%, accounting for 21.2% of total revenue [1] - Revenue from the European and other regions was 1.069 billion yuan, a 15.1% increase, driven by the strong performance of the VAPORESSO brand [2] - The U.S. market revenue was 174 million yuan, down 6.7%, while the Chinese market saw a significant increase of 2595.2% to 30.618 million yuan, mainly from the "岚至" brand [2] - Revenue from enterprise clients was 4.739 billion yuan, up 19.5%, making up 78.8% of total revenue [2] Regulatory Environment - Increased enforcement against non-compliant products in the U.S. has been noted, with the FDA and CBP seizing over 135 million USD worth of illegal e-cigarettes [2] - In Europe, several countries have imposed restrictions or bans on disposable e-cigarettes, with the UK implementing a sales ban on June 1, 2025 [2] R&D and Future Growth - The company successfully supported the launch of the high-end HNB product Hilo series, set to be released in Japan in September 2025 [3] - The vapor medical subsidiary is developing leading asthma and COPD products for the U.S. and European markets, aiming for greater revenue contributions [3] - The "岚至" home beauty device has surpassed 10,000 users, and the professional equipment has received Class II medical device certification [3] - R&D expenditure for H1 2025 was 723 million yuan, down approximately 4.9%, representing about 12.0% of revenue [3] Profit Forecast and Investment Outlook - The company is expected to benefit from increased market concentration due to stricter regulations, with significant contributions from HNB business anticipated from 2026 [3] - Adjusted net profit forecasts for 2025-2027 are 1.472 billion, 1.979 billion, and 2.663 billion yuan, respectively, with year-on-year growth of 34.40% and 34.60% in 2026 and 2027 [3]