GTHT published a research report indicating that SMOORE INTL (06969) showed evidence of an upward trend in industry sentiment in the third quarter. Considering the impact of stock incentive costs, the firm has revised its profit forecasts, projecting the company's net profit attributable to shareholders to reach RMB 10.3 billion, RMB 19.4 billion, and RMB 25.4 billion for 2025-2027, respectively, and maintains a “Buy” rating. Based on industry averages and recognizing the company as a core supplier in the heated non-combustible industry chain, along with significant long-term R&D investments creating a robust technological moat, and the broad growth potential of the industry, the valuation premium derived from the company’s leading brand clients, particularly British American Tobacco’s upcoming iterations of heated non-combustible products and continuously increasing market share, warrants a 2025 PE of 110.0X, equating to a target price of HKD 19.87 (at an exchange rate of 1 HKD = 0.92 RMB).
Key Points from GTHT: - Third quarter revenue reached a historic high - For Q3 2025, the company achieved revenue of RMB 4.197 billion, marking a historic high, up 27.2% year-on-year and 27.5% quarter-on-quarter; net profit attributable to shareholders was RMB 317 million, down 16.4% year-on-year but up 5.7% quarter-on-quarter. Excluding stock incentive costs, net profit experienced a year-on-year increase of 4.0% and a quarter-on-quarter rise of 4.8%. The growth in profit is primarily attributed to: 1) increased revenue and gross profit; 2) growth rates of distribution, sales, administrative, and R&D expenses excluding stock incentives being lower than revenue; 3) an increase in other income and gains.
- Diverse business segments show concurrent growth - By business segment, OEM and proprietary brand revenues both showed sequential growth, with heated non-combustible (HNB) and vaping businesses also experiencing growth. 1) In the HNB segment, the company fully supports its strategic clients' global market expansions, resulting in a significant increase in product shipments. 2) In vaping, heightened regulatory scrutiny on non-compliant products in major global markets has facilitated the introduction of new compliant electronic vaping products for more clients. 3) In APV, the flagship series new product launched in the first half of the year has been successfully iterated, expanding the consumer base and driving an increase in market share.
- Clear upward trend in industry sentiment - The traditional vaping business is expected to continue benefiting from changes in regulatory environments in Europe and the U.S., with an anticipated increase in compliant operations. Feedback on the new Glo Hilo products in the HNB category has been excellent, with British American Tobacco intensifying promotional efforts through their channels. The company is assisting clients in launching products nationwide in Japan by September 2025 and plans to expand to more core markets in the second half of 2025. Additionally, the company has developed multiple technology platforms addressing various user pain points, and collaborative efforts to accelerate commercialization are underway, providing a clear growth path for the business.