CICC: Maintains outperform rating on SMOORE INTL(06969) with a target price of HK$23.

CICC released a research report stating that considering the inclusion of equity incentive expenses, the 2025 net profit attributable to shareholders of SMOORE INTL (06969) is forecasted to decrease by 20% to 1.05 billion yuan (with the corresponding adjustment for equity incentive expenses, the net profit attributable to shareholders is expected to remain flat year-on-year). Taking into account the scaled delivery of HNB cigarettes driving performance growth, the forecast for the 2026 net profit attributable to shareholders is increased by 11% to 1.88 billion yuan, with the current stock price corresponding to a 2026 P/E ratio of 47 times. The outperform industry rating is maintained, and the target price of HK$23 is kept unchanged, corresponding to a 2026 P/E ratio of 69 times (corresponding to a 2026 PEG ratio of 0.88), with a 46% upside potential. Key points from CICC: 3Q25 performance meets expectations The company released its 1-3Q25 results, with revenue reaching 10.21 billion yuan, a year-on-year increase of 21.8%, and net profit attributable to shareholders reaching 810 million yuan, a year-on-year decrease of 23.8%. After adjusting for equity incentive expenses, the net profit attributable to shareholders was 1.18 billion yuan, a slight increase of 0.1% year-on-year. Looking at the quarterly performance, the net profit for 1Q/2Q/3Q25 was 200 million/300 million/317 million yuan, with year-on-year changes of -43.4%/+12.7%/-16.4%, meeting expectations. Glo Hilo advancing steadily in the Japanese and Polish markets, and growth continuing in the European aerosol e-cigarette market Specifically in 3Q25, for 1) HNB: British American Tobacco's Glo Hilo is currently being fully sold in Japan and Poland. The report believes that Glo Hilo's flavor fidelity, heating speed, and brand image are all among the top in the industry. The recent terminal sales rhythm has been overall positive, and the heater shipments are expected to contribute revenue; 2) Aerosol E-cigarettes: With the ban on disposable products in Europe, the sales of compliant products from small and medium-sized brands in cooperation with the company are active and are expected to drive revenue growth in Europe. Orders in the U.S. are expected to be relatively stable under strengthened regulations; 3) APV: Open brand global market share is leading, and the company is expected to continue to grow in 3Q25. Equity incentive expenses have a short-term impact on profitability, and high R&D investment continues In the short term, with the rapid increase in orders for aerosol e-cigarettes in Europe and the previous sales decline in HNB heater products, the company's short-term gross profit margin may be slightly under pressure. With the climb in aerosol e-cigarette orders and the sales volume of high gross profit HNB cigarettes, the company's profitability is expected to continue to improve in the future. On the expense side, the company is increasing its investment in aerosol medical and new HNB business research and development, coupled with the impact of equity incentive expenses, 3Q25 net profit/adjusted net profit was -16.4%/+4% year-on-year. Positive outlook on global expansion of HNB driving performance growth, and accelerates landing of aerosol medical leading to medium and long-term growth prospects for the company 1) HNB: The report expects Glo Hilo to accelerate its expansion in core global markets in 2026, with increased shipments of cigarettes expected to drive performance growth, with new products, new technologies, and new customers opening up medium and long-term opportunities; 2) Aerosol Medical: With the acceleration of the development of complex generic drugs and the gradual implementation of innovative drug BD cooperation, aerosol medical is expected to achieve commercialization, opening up medium and long-term growth opportunities. Risk Warning: Policy regulation risks; customer dependence risks; technology risks; exchange rate fluctuations.