【行业研究报告】思摩尔国际-Operational challenges remain; but China regulatory risk to sentiment likely settled

Lukewarmtakeawayfromanalystbriefing,inourview,whennearterm
outlookiscloudedby1)lingeringuncertaintyinPMTAapprovalafterFDA
outlookiscloudedby1)lingeringuncertaintyinPMTAapprovalafterFDA
deniestwomentholrefillsbyVuseSolo,citingthelackofsufficientevidence
todemonstratethatpermittingthemarketingoftheproductswouldbe
appropriatefortheprotectionofthepublichealth,and2)theprevalenceof
unlawfulfruit-flavoredrefillsinbothUSandChinamarket.
AslowstartforChinain2023,whenJanandFebretailsaleswere
cannibalizedbyunlawfulrefillsunderthenewregulatoryregime,according
toourchannelcheck.Whileregulatorshavebeenactivelycombatingany
illegaldistributions,wearehopefulofseeingcompliantrefills(i.e.tobacco-
flavored)torecoverfrom2Qonwards.However,weremaincautiousin
ChinarevenueandexpectasmallYoYdecline.
Businessdiversificationishappening,buttheroadmaptobearfruit
remainsabsent.ConsideringtheRMB1.3bnR&Dspendingfor2022,74%
wasspentondisposablevapes,12%onmedicalbeautyandtheremaining
onindustrialvaporization.Despitethefast-growthseenintheformer,
concernsoverregulatorysupervisionisgraduallysurfacing.Ontheother
hand,wewerenotofferedanyconcretetimelineonrevenuegenerationfor
theremaininginitiatives.
Earningschange.Wecutour2023/24Erevenueby20%/31%toreflecta
weakerUS/Chinaoutlookdespiteourhigherrevenueestimatesfor
disposablevapes(RMB3.4bnvspreviouslyRMB3.0bn).Wealsotrimour
GPMby10ppp.atofactor-inthedilutionimpactuponthemixchange.Both
leadtoa45%/54%cutinournetprofitsestimatesoverthesameperiod,
respectively.Ourestimatesareingeneral20%lowerthanconsensus.
Valuation.Inattempttofactor-inthecurrentperplexedlocalsentimentthat
reflectstherevisedbusinessoutlookafterthenewregimebecameeffective,
wenowstartourvaluationaveragefromMarch2022(vspreviouslysince
Smoore’sIPO).Uponourearningschanges,ourrevisedTPisbasedon
21.5x(frompreviously35.5x)roll-forwardedend-23E,whichstillrepresents
-1sdbelowtheaveragevaluation.Currentvaluationissettlingaround
historicaltrough,andwethinkregulatoryrisktosentimentiswell-priced.
MaintainBuy.