Bank of America Securities released a research report stating that it maintains the Smore International (06969) “outperforming the market” rating, believing that its profitability visibility is low, the regulatory adverse factors for e-cigarettes and disposable products, and the stock value, which is predicted to have a price-earnings ratio of 23 times this year, is high. Also, the adjusted earnings per share forecast for this year and next two years will be lowered by 15% and 12%, and the target price will be lowered from HK$6.3 to HK$5.4.
According to the report, the company's revenue fell 8% year on year to 11.2 billion yuan, 8% lower than expected, mainly due to sales of e-cigarettes and disposable products falling short of expectations; net profit after tax fell 34.5% year on year to 1.65 billion yuan, which is generally in line with expectations. The bank believes that SMOORE's sales in China are already at a low point this year. It is expected that, driven by products such as disposable products and private label products, the group's sales will correct, although e-cigarette sales may fall slightly again. However, with lower gross margin expectations, increased marketing expenses, and continued investment in medical insurance/heating non-combustible products (HNB) research and development, the industry expects SMOORE's profit to be roughly flat year over year.