Daiwa Capital Markets has revised its rating for SMOORE INTL (06969) from 'Outperform' to 'Hold'. The brokerage has also significantly reduced its target price for the stock from HK$17 to HK$7.6. This valuation is based on a target price-to-earnings (P/E) ratio of 27 times the average earnings per share for the 2026-2027 period, which equates to a 2026 forecast price/earnings-to-growth (PEG) ratio of 1. This is consistent with the average valuation of other original equipment manufacturer (OEM) peers. The firm believes that while e-cigarette products could deliver positive sales surprises and new heated tobacco (HNB) clients may offset the impact of inventory reduction by British American Tobacco in the Japanese market, the stock's current valuation already fully reflects its medium- to long-term potential.

Daiwa identified two key catalysts that could help SMOORE INTL's major clients gain market share in e-cigarette products: ongoing intensified enforcement against non-compliant products and the potential first-time marketing authorization for fruit-flavored e-cigarettes by the U.S. Food and Drug Administration (FDA) in May 2026. British American Tobacco recently raised its organic sales growth guidance for new categories to mid-teens (approximately 13% to 17%) for the first half and full year of 2026, up from a previous low-teens (approximately 10% to 13%) forecast. SMOORE INTL had previously guided for sales growth exceeding 10% for the 2026 fiscal year. Daiwa expects e-cigarette product sales could surpass this guidance in the upcoming interim results announcement. Furthermore, with new HNB clients anticipated to join in the second half of the year, the company's sales target of RMB 2 billion for HNB products should be easily achievable.

However, Daiwa notes that the stock's potential appears fully priced in. The current market consensus implies forward P/E ratios of 30 times for 2026 and 20 times for 2027. This compares to an average of 14 times and 12 times, respectively, for other OEM peers over the same periods. The brokerage forecasts a net profit compound annual growth rate of 28% from 2026 to 2028, with earnings acceleration expected to begin from 2027.