Summary of Smoore International's Conference Call Company Overview - **Company**: Smoore International - **Industry**: Electronic smoking devices and related products Key Points and Arguments Financial Performance - **Q3 Revenue Growth**: Smoore International reported a 27.5% increase in revenue for Q3 2025, exceeding market expectations, with adjusted profit rising by 4.8% quarter-over-quarter [2][3] - **HNB Product Sales**: The strong performance was driven by robust sales of Heat-Not-Burn (HNB) products, with expectations of at least 1.2 billion RMB in annual revenue from HNB [3][4] - **Traditional Vaping Products**: The traditional vaping segment also saw significant growth, particularly in Europe, due to the introduction of new products following a ban on disposable e-cigarettes [2][3] Market Dynamics - **European Market**: The European market outperformed overall company growth, driven by regulatory changes and the introduction of new products [2][5] - **U.S. Market Recovery**: The U.S. market is recovering more slowly, but stricter regulations on compliant products are creating opportunities for Smoore's partners, such as British American Tobacco's VUSE brand [5] Strategic Initiatives - **Expansion of HNB Markets**: Smoore is entering more core markets for HNB products, including Poland and Italy, aiming to transition from the initial development phase to a more expansive growth phase [7] - **Collaboration with British American Tobacco**: The partnership with British American Tobacco is seen as a significant growth opportunity, enhancing Smoore's product offerings and market reach [4][10] Product Development - **Medical Nebulization**: Smoore is investing heavily in the medical nebulization sector, with expectations to generate revenue starting in 2026. The company has submitted multiple products for FDA approval [4][11] - **Free Brand WAPER**: The company is increasing market share for its free brand WAPER through enhanced channel coverage and localized operations, despite limited elasticity in this segment [6] Future Outlook - **Profitability Expectations**: While current profits are not exceptionally high, Smoore anticipates improved profitability from 2026 onwards, driven by regulatory changes and market share expansion [9] - **Valuation and Market Potential**: Following recent stock price adjustments, Smoore's valuation is seen as attractive, with a static P/E ratio of 58x for 2025, expected to drop to 39x in 2026 and 29x in 2027, indicating significant future earnings potential [12] Long-term Growth Areas - **Beauty Nebulization**: The beauty nebulization segment is part of Smoore's long-term strategy, expected to follow the medical nebulization developments, with promising growth potential [13] New Business Contributions - **Initial Profit Contributions**: New business segments are expected to have limited profit contributions initially, which is typical for early-stage promotions. The focus is on market share, with profitability expected to improve as sales volumes increase in subsequent years [14] Additional Important Insights - **Production Capacity**: Smoore has automated production capabilities for 2 million devices and plans to increase this to over 5 million, with monthly production of 2 million cartridges [10] - **Market Positioning**: Smoore positions itself as a technology platform, providing differentiated solutions to various tobacco companies, not just British American Tobacco [7][8]

Investment Rating - The investment rating for Smoore International (6969.HK) is not explicitly stated in the provided documents, but the report suggests a positive outlook based on market developments and company performance [1]. Core Viewpoints - The marketing promotion of HILO in Japan is expected to accelerate, while the compliance market in the US is showing signs of recovery [1]. - The competitive landscape in Japan is intensifying, with major players like Philip Morris and British American Tobacco reducing prices, which may enhance HILO's market share [2]. - The US market is anticipated to improve further, with an increase in the compliance product listing rate expected from Q3 2025, benefiting Smoore's core supply chain [2]. - In Europe, Smoore's ODM revenue is projected to grow significantly, with a year-on-year increase of 38% in the first half of 2025, indicating a successful transition from disposable products to compliant alternatives [3]. - The HNB (Heated Not Burned) product line is set to launch in Japan and expand into Europe, with expectations for revenue growth in subsequent quarters [3]. - Profit forecasts indicate a continuous improvement in operational performance, with net profits projected to reach 1.23 billion, 2.02 billion, and 3.06 billion yuan for 2025, 2026, and 2027 respectively [3]. Summary by Sections Market Developments - The US FDA and CBP have conducted significant enforcement actions against unauthorized e-cigarette products, indicating a tightening regulatory environment that may benefit compliant products [1]. - The introduction of new regulations in various US states is expected to enhance the market for compliant products, with a notable increase in the market share of compliant flavors [2]. Financial Projections - Total revenue is projected to grow from 11.8 billion yuan in 2024 to 19.3 billion yuan in 2027, with a compound annual growth rate (CAGR) of approximately 18% [6]. - The net profit is expected to recover from a decline in 2024 to a significant increase by 2027, reflecting a turnaround in profitability [6]. - Earnings per share (EPS) are forecasted to rise from 0.21 yuan in 2024 to 0.49 yuan in 2027, indicating improved shareholder value [6]. Operational Insights - The company is focusing on product innovation and compliance, with a shift from disposable products to more sustainable and compliant offerings, which is expected to drive growth in various markets [3]. - The operational cash flow is projected to improve significantly, reflecting better management of working capital and operational efficiency [9].