According to the latest data from the National Bureau of Statistics, upgraded consumption categories are showing accelerated growth, with significant speed increases in certain high-end consumption sectors. Analysis indicates that as consumption patterns continue to innovate, new consumption formats represented by "self-pleasing consumption" and "emotional consumption," along with personalized and diversified consumption demands, are flourishing. Against this backdrop, tobacco and alcohol consumption has attracted attention.
The e-cigarette sector has shown a sustained upward trend since mid-April. Taking industry leader SMOORE INTL (06969) as an example, the company's stock price continued to climb during the second quarter, with gains reaching 100% since the beginning of the year. Recently, the company's major client British American Tobacco released impressive earnings, driving the company's stock price up again, with SMOORE INTL's development prospects once again attracting market expectations.
**Major Client Performance Shows Strong Growth**
Financial reports show that in the first half of this year, British American Tobacco's new category tobacco products generated revenue of £1.651 billion, up 2.4% year-on-year, with adjusted gross profit of £1.006 billion, up 6.8% year-on-year. The adjusted gross margin increased by 2.5 percentage points year-on-year to 59.5%, and this category's profit contribution surged 39% year-on-year to £179 million.
Within this, the company's heat-not-burn (HNB) business demonstrated excellent new product capabilities, achieving revenue of £440 million during the period, up 0.8% year-on-year, with sales volume of 10.1 billion units, up 1.6% year-on-year.
Notably, the company's new product Hilo began test marketing in Sendai, Japan in June. The company disclosed that in market research, consumers' perception of the Glo brand's recognition, innovation, and product design capabilities has significantly improved due to Hilo. Within weeks of launch, Hilo's market share had risen to 1.5%. The company acknowledges Hilo's pilot success and expects to expand nationwide in Japan in September, with launches in more core markets in the second half of the year.
Against this backdrop, British American Tobacco raised its revenue guidance, expecting 1-2% revenue growth for fiscal 2025, with full-year new category revenue growth in the mid-single digits. The company also increased its share buyback program to boost market confidence.
**SMOORE INTL's Development Prospects Look Promising**
SMOORE INTL is the core supplier for British American Tobacco's Glo Hilo products, operating under an "OEM revenue + sales sharing" model. The company recently released its interim earnings preview, showing first-half revenue of RMB 6.013 billion, up 18% year-on-year; pre-tax profit of RMB 629-769 million, down 5%-23% year-on-year; and after-tax profit of RMB 443-541 million, down 21%-35% year-on-year.
Analysis points out that benefiting from the company's continuous launch of innovative products and sustained improvement in competitiveness across major global markets, both proprietary brand business and enterprise client business achieved impressive revenue growth, driving corresponding gross profit growth. However, profit performance was affected by increases in share-based payment expenses, distribution and sales expenses, and legal service fees. The increase in distribution and sales expenses was mainly due to the company's further intensified market development efforts for proprietary brand products, especially overseas market expansion.
It's worth emphasizing that since 2010, the company has strategically positioned itself in HNB product development with forward-looking vision, demonstrating exceptional technological foresight. In 2017, the company established a strategic partnership with Japan Tobacco, officially entering the HNB market by providing core electronic atomization components. This collaboration bore fruit in 2018, with the jointly launched Ploom Tech product achieving major technological innovation by successfully applying e-liquid atomization technology to hybrid HNB devices, setting a new industry benchmark.
To deepen its strategic positioning in the HNB field, the company established the METEX business division. Through continuous technological R&D and innovation accumulation, it has now built solid technological barriers. The company not only owns multiple proprietary HNB technology patents but has also developed diversified heating technology solutions, fully demonstrating the depth and breadth of its technological innovation.
In 2024, the glo Hilo series products launched in cooperation with British American Tobacco achieved important progress. The company not only handles the design and manufacturing of electronic atomization components but also participates in tobacco stick patent technology development, achieving a transformation from component supplier to core technology partner and occupying a more important position in the industry value chain.
**HNB Market Potential is Enormous**
This series of strategic positioning and technological breakthroughs fully demonstrates the company's technical strength and market influence in the HNB field, laying a solid foundation for future development. Since 2024, the company has continuously strengthened its R&D positioning in heat-not-burn (HNB) and medical atomization fields, with R&D investment achieving 6% year-on-year growth in 2024 despite a high base from previous periods.
Notably, the company's investment in atomized medical and atomized beauty product development reached RMB 390 million, a significant 41.3% year-on-year increase, fully demonstrating the company's strategic emphasis and development determination for HNB business.
Financial analysts point out that the company currently possesses a significantly differentiated and competitive heat-not-burn product portfolio, with innovative products gaining client recognition. Heat-not-burn products supported by the company for clients are expected to launch in more global markets in 2025, with HNB business expected to gradually contribute more revenue starting in 2025. The company actively invests in R&D, reserves more technology and product solutions, and actively seeks cooperation with other industry leaders, laying the foundation for establishing a second growth curve.
Securities analysts noted that the global HNB market size remains in continuous growth, and the opening of the US HNB market is expected to contribute significant incremental volume. Against the backdrop of Europe's comprehensive restrictions on disposable cigarettes and the US's severe crackdown on illegal products while accelerating approval of compliant products, the legal pod-based market size is expected to continue expanding.
Previously, Philip Morris and British American Tobacco have respectively proposed targets for new category tobacco revenue to exceed 50% in the future, and overall, overseas new category tobacco development has become an unstoppable trend. FDA officials stated that 85% of currently sold e-cigarettes are illegal products, with future efforts prioritizing crackdowns on illegal e-cigarettes, and cross-departmental enforcement with customs has already begun seizing massive amounts of illegal products, indicating considerable room for compliant market expansion.
The FDA's crackdown on illegal products runs parallel with gradually relaxing compliant product sales permits, making the expansion trend of the US compliant atomization market still clear. Strict overseas regulation of non-compliant products will benefit leading brands, and the company is expected to fully benefit from overseas new category tobacco demand growth and major client business expansion, with optimism for long-term growth of atomization leaders represented by SMOORE INTL.
Overall, SMOORE INTL, leveraging forward-looking technological positioning and deep industry chain synergy capabilities, has gradually evolved from a core component supplier to a strategic partner in the HNB field. The performance breakthroughs and market expansion of major clients like British American Tobacco not only validate the commercial value of the company's technological approach but also open broader growth space for SMOORE.
Although short-term profits are affected by expense investments, the company's advantages in HNB core technology, patent reserves, and global production capacity, combined with continuous expansion of compliant markets under increasingly strict regulations in various countries, will drive long-term value realization. In the future, as innovative products like glo Hilo achieve global volume, SMOORE INTL is expected to further consolidate its leading position in the new category tobacco industry transformation, welcoming dual improvements in performance and valuation.