Despite significant overseas performance gains and revenue growth transitioning from negative to double-digit growth, SMOORE INTL (06969) faces valuation rebound pressure due to its revenue growth without profit improvement situation.

SMOORE INTL released its Q3 2025 financial results today, reporting revenue of 4.197 billion yuan for the quarter, up 27.2% year-on-year, marking a record high for quarterly revenue. The first three quarters generated revenue of 10.21 billion yuan, up 21.8% year-on-year. However, despite revenue growth, profits declined, with Q3 net profit of 317 million yuan, down 16.4% year-on-year, and net profit for the first three quarters of 809 million yuan, down 23.8% year-on-year, showing a declining trend in profitability.

The company's significant revenue increase was primarily driven by dual engines: B2B client business and self-owned brand business, both achieving substantial revenue growth. The greatest contribution came from overseas performance, mainly influenced by growing customer demand in Europe and other countries, as well as the United States, with these two overseas markets contributing over 97% of revenue.

However, due to cost and competitive pressures, the company's profitability declined rather than improved, with net profit falling for four consecutive years. The net profit margin for the first three quarters of 2025 dropped to 7.92%. Despite revenue growth and sector momentum, the company's market value rebounded from its 2024 lows with gains exceeding 100%, continuing to rebound in 2025, though facing obvious rebound pressure with gains significantly lower than peers and the broader market. Monthly charts show three consecutive months of decline, raising the question: is the company's rebound coming to an end?

**Dual-Engine Drive with Overseas Markets as Performance Turning Point**

SMOORE INTL's development history has a crucial turning point in 2022. Before then, revenue maintained high growth trends, but afterward entered a correction phase with two consecutive years of revenue decline. Growth resumed in 2024, returning to double-digit growth in 2025.

This was mainly due to global supply chain disruptions during the 2022 pandemic era, along with inflation in certain commodities, causing overseas market declines. Domestically, the "Electronic Cigarette Management Measures" applied emergency brakes to the e-cigarette industry, ending the company's long period of high growth.

After 2022, the company adjusted its market strategy, focusing on overseas markets as key development areas, gradually reversing performance growth trends.

SMOORE INTL operates two main businesses: B2B client business and self-owned brand business. Both businesses focus on developing overseas markets, particularly European markets, with significant strategic success.

The B2B client business primarily serves leading global tobacco companies, independent vaping brands, and other corporate clients with heat-not-burn and electronic vaping services. The company meets market demand by launching innovative compliant products while helping e-vaping clients quickly introduce innovative, compliant products to fill market gaps left by non-compliant product bans.

This business continues growing in overseas markets, especially Europe. In the first half of 2025, revenue from European and other countries reached 2.734 billion yuan, up 38% year-on-year, accounting for 57.7% of business revenue, 45.4% of total revenue, and contributing 81% of revenue growth.

The self-owned brand business mainly features open-system electronic vaping products and vaping beauty products. Through continuous innovation and product iteration, it continues capturing overseas market revenue share, with the LANTZ brand performing strongly and experiencing rapid growth in European and other countries.

In the first half of 2025, this business generated 1.07 billion yuan in European and other countries, up 15.1% year-on-year, accounting for 84% of business revenue, 17.8% of total revenue, and contributing 15.18% of revenue growth. Additionally, in 2024, this business achieved 37.2% revenue growth in this market, contributing 92% of revenue growth.

Clearly, both businesses' main growth highlights are in European and other countries markets, forming a dual-engine drive trend expected to maintain high growth and contribute core performance in the second half.

The company also has market presence in the US and China, but performance is less optimistic under strict e-cigarette policy oversight. For example, self-owned brand US market revenue declined 6.7% in the first half, while Chinese market revenue accounts for only 0.5%.

**High-Intensity R&D with HNB Product Expectations**

Over the past two years, SMOORE INTL's self-owned brand business has contributed prominently to performance, mainly due to continuous R&D investment focused on vaping medical fields and heat-not-burn products, continuously enriching electronic vaping and vaping beauty product portfolios.

In the first half of 2025, the company's R&D spending reached 722 million yuan, with 479 million yuan invested in electronic nicotine delivery systems (electronic vaping and heat-not-burn products), accounting for 66.2%.

In electronic vaping, the company's products have global competitive advantages. For example, in 2024, it launched the world's first high-burst flavor solution FEELM TURBO, and its self-owned brand VAPORESSO introduced mouth-to-lung products XROS 4 and XROS 4 Mini, with this brand series continuing strong global sales.

In heat-not-burn products, the company increased investment starting in 2024, continuously driving technological breakthroughs through self-research and collaborative innovation, owning multiple proprietary HNB technology patents. 2025 is viewed as a crucial transitional year, successfully supporting a strategic client in launching their premium HNB product series in key markets, accelerating commercialization of R&D achievements.

Additionally, the company's R&D investment in vaping beauty accounts for over 20%. In 2024, it launched the LANTZ brand and first-generation vaping beauty product solutions with significant success, becoming the industry's first beauty product achieving high-viscosity skincare essence vaping.

SMOORE INTL places considerable emphasis on this brand, continuously expanding the "ToB + ToC dual-engine" business model to drive sustained high growth in self-owned brands.

As of the first half of 2025, the company filed 839 new patent applications globally, including 464 invention patents, with cumulative global patent applications reaching 10,092, including 5,224 invention patents.

Notably, the company has abundant cash flow, holding 5.21 billion yuan in cash and equivalents, 4.153 billion yuan in short-term deposits over three months, totaling 9.363 billion yuan, plus 2.086 billion yuan in long-term deposits. Over 10 billion yuan in cash flow provides sustainable development guarantees for high-intensity R&D and overseas market expansion.

**Declining Profitability: Awaiting Right-Side Opportunities**

SMOORE INTL's main issue is insufficient profitability improvement. Gross margins show a declining trend, from 43.3% in 2022 to 37.3% in the first half of 2025, a cumulative 6 percentage point decline. High-intensity R&D has driven R&D expense ratios continuously higher, from 11.3% to 12%, while period expense ratios (sales, administrative, and financial) also trend upward from 12.9% to 18.53%.

Self-owned brands face end customers, significantly increasing sales and marketing expenses. However, as the company's revenue scale continues expanding, it's expected to achieve economies of scale, thereby improving profitability levels.

From 2022 to the first three quarters of 2025, the company's net profit margins were 20.67%, 14.68%, 11%, and 7.92% respectively.

The company uses equity incentive models to closely bind talent with company development. In May this year, under share award plan terms, it granted 1.614 million award shares to 36 eligible participants. In July, under revised share award plan terms, it granted 1.2 million award shares to 8 eligible participants.

Despite poor profitability, the company actively enhances shareholder returns with strong financial resources. The 2025 interim cash dividend totaled 1.238 billion yuan, up 3 times year-on-year, with a payout ratio of 252%.

Investment bank views on SMOORE INTL are mixed. UBS issued a research report expecting 20% revenue growth in 2025, mainly driven by e-cigarette sales, but net profit declining 40% year-on-year due to rising R&D and sales expenses plus gross margin pressure, giving a "Sell" rating. China Merchants Securities is very optimistic, believing the company's vaping core business is poised for recovery, with positive feedback from major client HNB product trial sales and broad growth potential, potentially becoming the company's second growth curve, maintaining a "Strong Buy" investment rating.

Overall, SMOORE INTL's growth inflection point is relatively clear, with both self-owned brand business and B2B client business opening sales channels in European and other countries markets. However, Chinese and US markets continue contracting, with future potential depending on policy relaxation.

The company faces revenue growth without profit improvement, declining gross margins, and continuously rising expense ratios, significantly constraining company valuation. However, it has expectations for economies of scale, and as overseas markets and HNB growth drivers continue releasing, profit margins are expected to reverse the declining trend.

Currently, the company's valuation remains in a weak rebound, awaiting right-side opportunities.