Export tax rebate cancellation combined with performance recovery, SMOORE INTL (06969) stands at a logic transition crossroads.

Title context: Export tax rebate cancellation combined with performance recovery, SMOORE INTL (06969) stands at a logic transition crossroads. Text: A third-quarter report showing 18% sequential profit growth has instead brought short-term pressure on the stock price. Behind SMOORE INTL's (06969) 2026 third-quarter report is a head-on collision between fundamentals and policy. Recently, SMOORE INTL disclosed its third-quarter results, with profit of RMB 365 million during the period, up 15.2% year-on-year and 18.0% quarter-on-quarter. Deliveries of flavored e-vapor products in the U.S. market are gradually landing, and the heat-not-burn business improved sequentially. The operating-level recovery signals are unambiguous. But on the same day, the Ministry of Finance and the State Taxation Administration announced that, starting April 1, 2027, VAT export tax rebates for products including electronic cigarette devices and apparatus would be canceled. The market immediately voted with its feet, choosing to price in the expectation of a certain rise in costs after 2027. After going through multiple rounds of policy adjustments and fluctuations in global demand, the e-cigarette industry is gradually entering a new repair phase, and SMOORE's earnings report happens to stand at the intersection where old dividends are fading and a new logic is being validated. Export tax rebates exit entirely, rising cost certainty weighs on valuation To understand SMOORE's current situation, one must first understand what export tax rebates mean to the company. It is understood that SMOORE is the world's largest electronic atomization device manufacturer, with an extremely high proportion of export business. For a long time, the 13% export VAT rebate has been a component of its profit structure that cannot be ignored. The first round of adjustments in April 2026 already canceled rebates for nicotine-containing e-cigarette products and heated tobacco devices, while the second-round announcement on October 12 further included categories such as e-cigarette atomization devices, nicotine and its salts in the cancellation scope. With the two rounds of policy stacked together, export tax rebates for all finished e-cigarette devices will be completely reduced to zero. The actual impact of the rebate cancellation on exports can already be traced in earlier data. Export data after the first adjustment in April this year provides an intuitive reference: that month, China's e-cigarette export value plunged to USD 694 million, down 20.9% year-on-year and 23.2% quarter-on-quarter, hitting the lowest level for the same period in nearly three years. The rebate cancellation directly changes the cost calculation method for contract manufacturers. The rebate amount previously included in profit suddenly disappears, and companies with limited pricing power will face losses. Some analyses point out that contract manufacturers will enter a "state of thin profit or even loss," and accelerated industry consolidation is inevitable. For SMOORE, the 13% rebate gap needs to be filled through product mix upgrading or customer bargaining, and this cannot be completed overnight. However, the policy also leaves a buffer window. The implementation date of April 1, 2027 means that before then, brands have a rational incentive to stock up in advance. It is noted that, referring to market behavior before the policy adjustment in April this year, overseas customers concentrated purchases in the first quarter, pushing peers' revenue higher in that quarter, followed by a decline in the second quarter. This kind of "front-loaded" order rhythm disturbance needs to be carefully distinguished. For investors, whether the order recovery in the fourth quarter is a genuine improvement in demand or a rhythm effect from the policy window still needs to be observed. Flavor deliveries and HNB breakthrough, compliant market takes over as growth engine The export tax rebate is a cost shock from the supply side, while SMOORE's story on the demand side presents a different picture. According to the latest announcement, in the third quarter of this year the company's revenue from atomization products for enterprise customers was approximately RMB 2.65 billion, up 16.4% quarter-on-quarter and about 1.8% year-on-year. The core DRIVE of growth came from the U.S. marketduring the period the company began delivering compliant flavored products such as fruit flavors to core customers. The significance of this progress far exceeds the single-quarter revenue figure. Since the FDA established the PMTA approval framework, non-tobacco, non-menthol flavored e-cigarette products have been almost excluded from the compliant market. In May 2026, the FDA approved non-tobacco, non-menthol e-cigarette products for the first time. The four approved products were equipped with device access restriction technology, including age verification through government-issued ID and Bluetooth pairing locks. This marks that the market channel for compliant flavored e-cigarettes in the United States is being redefined. According to a Cinda research report, four fruit-flavored products from core customer British American Tobacco have officially launched, with plans to distribute to about 25,000 retail outlets in September and add another 25,000 in November. From a more macro perspective, structural changes in the U.S. market are reshaping the flow of China's e-cigarette exports. Data show that in July 2026, China's overall export value of e-cigarette-related products reached USD 1.047 billion, up 16.5% year-on-year, a new single-month high for the year. But this growth was highly concentrated in the U.S. market: exports to the U.S. rose 53.5% year-on-year, contributing 94.9% of the month's overall increment, while markets outside the U.S. grew only 1.2%. August data then reversed: although overall export value still rose 3.3% year-on-year to USD 979 million, growth slowed significantly, exports to the U.S. turned to a decline of 12.4%, and the growth engine switched to the UK, which grew 51.4% that month. Putting the two sets of data together, one fact is already clear: the current growth of China's e-cigarette exports is highly dependent on the order rhythm of the single U.S. market, and this concentration is both a source of short-term volume expansion and a source of volatility. Once FDA enforcement policy reverses due to litigation or political pressure, or the stocking rhythm of core customers is adjusted, the growth model relying on the volume ramp-up of U.S. flavored products will face a direct stress test. Beyond the atomization business, the third-quarter data for the heat-not-burn business is also worth breaking down. During the period, HNB product revenue was approximately RMB 397 million, up 33.2% quarter-on-quarter but down 47.8% year-on-year. The company said the sharp year-on-year decline was due to the extremely high base formed by large-scale shipments to a core customer in the same period last year. More meaningful is the magnitude of the sequential improvement33% quarter-on-quarter growth means that, after the core customer's order rhythm returned to normal, the actual operating scale of the HNB business is recovering. Cinda analysis pointed out that the company began providing comprehensive HNB solutions to new customers in the third quarter, and the increment is expected to be further released in the fourth quarter. When releasing its interim report, company management listed HNB as the company's top strategy and made clear that the "multi-customer strategy has entered the stage of substantive implementation." From HNB revenue growing 322% year-on-year in the first half to new customer solutions landing in the third quarter, the trajectory of this business line is not linear growth, but more like a technology platform waiting for the gradual expansion of its customer matrix. The HNB industry itself is in the early stage of releasing technological dividends. Japan, as the world's largest HNB market, has reached a penetration rate of 40% to 50%, but performance differences among products remain significant, and suppliers with exclusive patents and iterative capabilities have the ability to ride through competitive cycles. The HNB brand under core customer British American Tobacco has a market share of 13%, with high-end products continuing to ramp up, and a second-generation product planned for launch in the fourth quarter. These rhythms echo SMOORE's multi-customer strategy: the core customer's iterative demand provides the base, while new customer solution launches provide incremental elasticity. Cinda pointed out that SMOORE's profit trough has passed, and fourth-quarter revenue is expected to rise sequentially and return to year-on-year growth. The basis for this judgment comes from observations at several levels. After adjusting for share-based payment expenses and losses from the medical business, the company's third-quarter net margin was 12.54%, steadily improving year-on-year, as expense contraction and product mix improvement are producing results. If the momentum of 17.7% quarter-on-quarter revenue growth in the third quarter can continue in the fourth quarter due to new products and new customers ramping up, a return to year-on-year growth is not an aggressive assumption. But the optimistic forecasts of brokerages are ultimately built on assumptions, and what truly determines whether these assumptions hold is the growth logic transition SMOORE is undergoing. Over the past several years, the company's growth engine has been a combination of policy arbitrage and scale effectsusing the cost advantage of export tax rebates to serve the incremental demand of global tobacco giants through a contract manufacturing model. As export tax rebates exit entirely and bargaining space in the contract manufacturing segment is compressed, new growth must come from capabilities that are harder to replace: access barriers in the compliant market, HNB technology patent reserves, and the speed of building a multi-customer matrix. In the third-quarter report, the landing of U.S. flavored product deliveries and the launch of new HNB customer solutions are precisely early signals of this capability transition. Whether the profit trough has passed ultimately does not depend on short-term contraction on the expense side, but on whether these new capabilities can grow into a growth engine strong enough to take over before the 2027 buffer window closes. Taken together, the cancellation of export tax rebates suppresses overall industry profitability, but it may also accelerate the clearing of low-end capacity, and the leading player's share logic has not been broken. For SMOORE, the real test is whether U.S. compliant flavored products and HNB multi-customer volume ramp-up can take over growth before the April 2027 buffer window closes. The short-term policy shock has already been priced by the market, while the validation path for the medium-term new engine has not yet been fully recognizedthis is precisely the core of the current pricing divergence and the window for long-term investors to re-examine the company.