Behind the new high of SMOORE INTL stock price: Is spring here or is it a temporary rebound?

Recently, the long-silent e-cigarette sector has attracted market attention.

According to Zhitong Finance APP, since mid-April this year, the e-cigarette sector has repeatedly risen. Taking the industry leader SMOORE INTL (06969) as an example, since May of this year, the company's stock price has increased by over 30% in just over ten trading days. On May 23, the company's stock price rose again, briefly breaking through HKD 18.82, reaching a new high in recent years. However, it is worth noting that although the stock price has nearly doubled since the beginning of the year, it is still less than a quarter of the company's historical market value peak, and the current valuation remains at a historical low.

Behind the new high in stock prices, has the "spring" for SMOORE INTL arrived?

HNB Market Potential is Boundless

Unlike traditional combustible tobacco products, new-type tobacco allows for nicotine intake without combustion and with virtually no tar or harmful components. According to Euromonitor data, the global tobacco market in 2023 is still dominated by traditional cigarettes, accounting for over 80%, while the new-type tobacco market is valued at USD 76.9 billion, accounting for about 8%. Based on the logic of harm reduction characteristics replacing traditional tobacco, new-type tobacco is a rapidly penetrating market with vast growth potential. According to WTO data, in 2022, the number of smokers aged 15 and above globally was about 1.25 billion, with a smoking penetration rate of approximately 15.6%. According to BAT's announcement, in the first half of 2024, the number of smokeless tobacco users in 42 major countries worldwide reached 101 million, including 74 million e-cigarette users, 28 million heat-not-burn users, and 16 million new-type oral tobacco users, with the penetration rate of new-type tobacco users among smoking consumers only at 8.1%, indicating significant room for improvement in smoker conversion rates.

Among them, e-cigarettes and HNB are the two core categories of new-type tobacco, with global market size shares reaching 28% and 45%, respectively.

Specifically, the global market size of vaporized e-cigarettes (E-Vapour) is USD 21.2 billion, with a compound annual growth rate of 6.6% from 2018 to 2023. The e-cigarette sector has frequent technological innovations, with a rich variety of types and flavors. In 2023, the market shares of cartridge-based, disposable, and open-system e-cigarettes were 38%, 25%, and 36%, respectively, with the market primarily concentrated in Europe and the United States. The vaporized e-cigarette market is highly competitive and fragmented, especially for disposable products, which have attracted many players due to low technological barriers, low production costs, and rapid iteration.

The global market size of heat-not-burn (HNB) products is USD 34.5 billion, with a compound annual growth rate of 23.3% from 2018 to 2023. Although HNB started later and has fewer categories compared to e-cigarettes, its development momentum is strong. In compliant markets, its scale has already surpassed that of e-cigarettes, with high penetration rates in regions such as Japan, South Korea, Eastern Europe, and Western Europe, while other regions represent potential markets with penetration rates of less than 1%. In terms of competitive landscape, HNB differs from vaporized e-cigarettes; similar to traditional cigarettes, it has a higher concentration dominated by international tobacco giants. According to Zhitong Finance APP, traditional cigarettes face high qualification barriers due to tobacco regulations, while HNB, as its cartridges mainly use processed sheets containing tobacco leaves, is still regarded as traditional tobacco products and regulated in most countries. Additionally, there are certain technological barriers in precisely controlling the heating of HNB sheets Against this backdrop, the HNB market prospects are receiving significant attention.

Is the Second Growth Curve Emerging?

The HNB market is precisely the business direction that SMOORE INTL has been continuously laying out, and it is expected to become the company's second growth curve.

According to Zhitong Finance APP, SMOORE INTL was established in 2009 and is a global provider of aerosol technology solutions. The company's main products include cartridge-based, disposable, open-system aerosol products, and heated non-combustion products, while also actively exploring new aerosol fields such as special aerosol, medical aerosol, and beauty aerosol.

In terms of revenue performance, from 2016 to 2021, the company's revenue grew rapidly from 710 million yuan to 13.76 billion yuan, with a compound annual growth rate of 81% during this period. However, since 2022, regulatory policies on the e-cigarette industry in mainland China have been frequent, and the U.S. market has been impacted by non-compliant products, leading to a significant decline in performance. Although in 2024, the company's mid-term performance was disturbed by the significantly strengthened regulatory efforts on the electronic aerosol market in the U.S. and Europe, the overall performance rebounded as the company's business structure was optimized, achieving revenue of 11.799 billion yuan in 2024, a year-on-year increase of 5.56%.

It is worth mentioning that since 2024, the company has continued to increase its R&D investment in HNB and medical aerosol, with R&D expenses increasing by 6% on a high base. Among them, the R&D expenses for medical aerosol and beauty aerosol products amounted to 390 million yuan, a year-on-year increase of 41.3%. This demonstrates the company's emphasis on HNB business.

Zhitong Finance APP noted that the company proactively laid out R&D for HNB products as early as 2010 and officially entered the HNB market in 2017 through a partnership with Japan Tobacco by manufacturing HNB electronic aerosol components. The Ploom Tech product launched in 2018 by both parties innovatively applied e-liquid aerosol technology to hybrid HNB devices. To deepen its layout in the HNB field, the company specifically established the METEX division, which has now built a complete technical barrier, holding multiple independent HNB technology patents and diversified heating technology solutions. In 2024, the company achieved significant breakthroughs with the Glo Hilo series products launched in collaboration with British American Tobacco, designing and manufacturing electronic aerosol components while possessing cigarette patent technology, directly participating in sharing the value chain.

It is reported that the new Glo Hilo product from British American Tobacco is positioned to compete with IQOS ILuma and has superior performance. It is currently being trialed in Serbia, and after product optimization, it will enter various markets, which is expected to reverse the decline of SMOORE INTL's HNB business. According to the latest news, the Japanese version of the Glo Hilo series will be launched first in Miyagi Prefecture on June 9, implementing a "Sendai pilot → nationwide promotion" strategy. Caitong Securities pointed out that the company is entering a new product capacity release cycle. The Japanese product plan is expected to generate positive feedback, and if the expansion in the European and American markets goes smoothly, it will further open up global space and a new curve for the company's long-term development. Northeast Securities noted that as the core supplier of British American Tobacco's Glo Hilo products, the company adopts a "contract manufacturing revenue + sales revenue sharing" model, and the HNB business is expected to usher in rapid development and support long-term performance growth First Shanghai pointed out that according to the strategic plan, the product will fully enter the core market in 2025, and it is expected to bring continuous profit growth to the company starting from the second half of 2025. By 2026, with the increase in market penetration and the expansion of the customer base, profits are expected to experience explosive growth, demonstrating strong development momentum and profit potential, laying a solid foundation for the company's long-term stable development.

Dongxing Securities report shows that Glo Hilo will be listed in Japan in June 2025, followed by expansion into the European market, and is expected to be listed in the United States in 2026, with new products supporting rapid growth in HNB. The firm believes that British American Tobacco is promoting a smoke-free transformation, and HNB new products will become an important support, with the revenue share of smoke-free products (including traditional oral tobacco) expected to exceed 20% and 50% in 2026 and 2035, respectively.

However, it should be noted that although the industry has great potential, policies have always been the core factor determining the trend of the new tobacco industry. Guosen Securities pointed out that in the short term, the introduction of regulatory policies, increased law enforcement efforts, or the public's lack of awareness of the harm reduction of e-cigarettes may disrupt the performance of e-cigarette penetration. Dongxing Securities stated that under such circumstances, non-compliant products may be eliminated, and the market share of compliant leading companies is expected to increase under the trend of market optimization. Guohai Securities also believes that as the United States strengthens law enforcement against non-compliant products, the company's compliant products are expected to gain a larger market share.

In summary, after experiencing the "strictest regulation" in 2022, the domestic e-cigarette industry is gradually entering a normalized policy stage. Although the entry threshold for the industry has increased, compliance has instead accelerated market clearing, further highlighting the competitive advantages of leading enterprises. At the same time, the policy environment in overseas markets is becoming more stable, especially in the European and American markets where SMOORE's core customers are located, with the regulatory framework gradually becoming clearer, providing support for its positive performance development.

However, although SMOORE INTL's "winter" is coming to an end, the real "spring" still requires continuous verification of performance. With the gradual promotion of HNB business, whether the company's second growth curve can truly open up and whether the company's performance can achieve explosive growth all require further attention from investors