Core Viewpoint - Smoore International (06969) reported significant revenue growth in Q3 2025, reaching 4.197 billion yuan, a 27.2% year-on-year increase, but faced declining profitability with a net profit of 317 million yuan, down 16.4% year-on-year [1][10] Revenue Performance - The company achieved a record high quarterly revenue, with total revenue for the first three quarters of 2025 at 10.21 billion yuan, up 21.8% year-on-year [1] - Revenue growth was primarily driven by the enterprise client business and proprietary brand business, with overseas markets, particularly Europe and the US, contributing over 97% of revenue [1][4] Business Segments - Smoore International operates two main business segments: enterprise client business and proprietary brand business, both focusing on overseas markets, especially Europe [4] - The enterprise client business generated 2.734 billion yuan in Europe and other countries in the first half of 2025, a 38% increase, accounting for 57.7% of this segment's revenue [4] - The proprietary brand business saw revenue of 1.07 billion yuan in Europe and other countries, a 15.1% increase, contributing 84% of its segment revenue [4][5] Market Strategy - The company shifted its market strategy post-2022, focusing on overseas expansion after facing declines due to pandemic-related supply chain issues and domestic regulatory challenges [2] - The US and China markets showed weaker performance, with a 6.7% decline in the US proprietary brand revenue and only 0.5% revenue contribution from China [5] Research and Development - Smoore International invested heavily in R&D, with total R&D expenditure of 722 million yuan in the first half of 2025, focusing on electronic nicotine delivery systems [6][8] - The company holds a significant number of patents, with 839 new applications globally, ensuring a competitive edge in the electronic vaporization market [8] Profitability Challenges - The company's profitability is under pressure, with net profit margins declining from 20.67% in 2022 to 7.92% in the first three quarters of 2025 [9] - Increased R&D and operational costs have led to a rise in expense ratios, impacting overall profitability despite revenue growth [9] Market Outlook - Analysts have mixed views on Smoore International's future, with some predicting revenue growth driven by electronic cigarette sales but cautioning about declining net profits due to rising costs [10] - The company's growth potential hinges on regulatory conditions in key markets, with expectations for profitability to improve as overseas markets and new product lines continue to develop [10]

Investment Rating - The industry rating is "Outperform the Market" (first time) [7] Core Insights - British American Tobacco and Japan Tobacco International are actively capturing the heated tobacco market in Japan and South Korea, with British American Tobacco's new product Glo Hilo set for nationwide launch in Japan on September 1, 2025 [1] - Japan's market for smoke-free products has surpassed traditional cigarettes, with forecasts indicating that Philip Morris International will hold a 69.8% market share in heated tobacco by 2024, while British American Tobacco is expected to maintain a 16.3% share [1] - Japan Tobacco International plans to invest approximately 650 billion yen (about 4.4 billion USD) from 2025 to 2027, aiming for a 10% global market share in heated not burned (HNB) products by 2028 [2] - The market share of heated not burned products in South Korea has increased ninefold over seven years, from 2.2% in 2017 to 18.4% in 2024, indicating significant growth potential [3] - In the first five months of 2025, China's e-cigarette exports amounted to 4.054 billion USD, with May exports reaching 812 million USD, reflecting a year-on-year decline of 19.52% [4] Summary by Sections British American Tobacco - The Glo Hilo product utilizes infrared quartz heating technology, reaching 370 degrees Celsius in five seconds, and is priced at 3,980 yen (approximately 25 USD) [1] - The product's trial in Miyagi Prefecture was successful, leading to a nationwide rollout [1] Japan Tobacco International - The company is focusing on product innovation and channel expansion in South Korea, including the re-launch of Ploom X Advanced and the introduction of limited edition devices [2][3] - The strategy includes enhancing online and offline sales channels and responding to local consumer demands [3] E-Cigarette Market - The e-cigarette export value from China has been affected by US-China trade tensions, with a notable decline in exports to the US [4] - The Middle East market is experiencing rapid growth, with the UAE becoming a significant destination for e-cigarette exports [4] Investment Opportunities - Suggested companies to watch in the vaping supply chain include Smoore International, Jincheng Pharmaceutical, and others [5]