Sinolink: Maintain a "buy" rating for SMOORE INTL (06969) with a target price of 13.35 Hong Kong dollars.

Sinolink has released a research report stating that they maintain a "buy" rating on SMOORE INTL (06969), with an estimated EPS of 0.22/0.26/0.37 Chinese Yuan for the years 2024-2026, without fully considering the contribution of the HNB business. Taking into account the strong growth potential of the company's new businesses, a reasonable PE of 48x for 2025 has been given, with a corresponding target price of 13.35 Hong Kong dollars. Sinolink's main points are as follows: Reviewing why SMOORE has experienced setbacks in the past: Since 2021, the continuous decline in EPS is mainly attributed to the frequent introduction of regulatory policies in China and the impact of illegal products overseas, putting pressure on revenue growth. Changes in product structure have also dragged down gross profit margins, while the company has increased research and development investments to cultivate new businesses, further affecting profitability. In this context, the market has concerns about the company's future growth, leading to a decline in the PE ratio. However, the company's core advantages remain significant, laying the foundation for a turnaround in performance, relying on continuous investment in research and development to maintain a leading edge in core product technology and deep relationships with major customers. Additionally, several of the company's OEM products have passed the PMTA review in the United States, further increasing customer stickiness. The headwinds in European and American policies may come to an end, benefiting the company's atomization and open e-cigarette business significantly. In the United States, according to Euromonitor statistics, the market share of illegal products currently exceeds 70%, but there is an expectation of increased crackdowns on illegal products and a relaxation of flavor restrictions. Legal e-liquid cartridge products in the United States are expected to grow by 63-299% by the mid-term. In Europe, with the gradual enforcement of bans on disposable cigarettes across countries, the market share for e-liquid cartridges and open products is expected to increase. In Europe, the mid-term market size for e-liquid cartridges is expected to grow by 42-60%, and for open products, by 52-75% by 2023. Under this trend, the company's revenue in the US and European markets will not only benefit from market expansion but also see a marginal increase in profitability due to changes in revenue structure. With the launch of new HNB products for major customers, the company is expected to enter its second period of growth. HNB is in a period where penetration rates are still increasing globally, with the global market size reaching $34.1 billion in 2023, and a CAGR of 23.1% from 2018-2023, with relatively low policy uncertainty. The company has been focusing on the HNB track for many years and has a rich technological reserve. One of the major customers, British American Tobacco, recently launched a breakthrough new HNB product "glo hilo" in Serbia, significantly improving product performance, and will further expand in core markets by 2025. As a core supplier of innovative tobacco products to British American Tobacco, the company is expected to benefit from its rapid growth in the HNB sector. Based on the advantages of the atomization platform, new business is expected to open up long-term growth opportunities. In recent years, while maintaining its leading edge in atomization e-cigarette technology, the company has increased investments in research and development in special, medical, and beauty atomization directions. Leveraging its atomization platform advantage, the company continues to iterate products in the special and beauty atomization fields, and has accumulated a wealth of differentiated leading technologies in the medical atomization field. Overall, new product categories are expected to gradually increase under the platform advantage, supporting the company's long-term growth.