A Closer Look At Smoore Int'l

Smoore International $SMOORE INTL(06969)$rose 7 percent today, almost quadrupled Hang Seng index's increase, while the

MSCI AC Asia Pacific Index gained merely 0.8 percent. The counter advanced 249 percent in the past 52 weeks and currently trades at 38x times its estimated EPS for the coming year.

Many investors know Smoore as an e-ciggarette player, but doesn't really drill down to the exact part of the value chain Smoore is operating within. To sum up Smoore's business, the company operates two principal business segments: corporate-client-oriented business and retail-client-oriented business.

- Corporate business includes the research, design and manufacturing of closed system vapor devices and vapor components for several large international tobacco companies as well as some smaller independent vapor companies.

- In the retail arena, Smoore performs research, design, manufacturing and the sale of self-branded, open system vapor devices for retail clients.

Analysts consensus on Smoore's Forward 12-Month Price Target is currently at HKD 74.83, indicating an upside potential of +67.2% from its current spot. The tabulation of analyst recommendation calls is: 21 Buy, 0 Hold, 0 Sell. 

Why? The reasons possibly come from the followings aspects: advanced R&D technology, strong manufacturing capacity, wide-spectrum product portfolio and diverse customer base.

- Breakthrough ceramic vaporizing technology – FEELM

Smoore's vaporizing technology is at least 2-3 years ahead of its competitors. In 2016, the company launched its second-generation heating technology, Feelm, which combines metal films with ceramic conductors to achieve improvements in material and structural science.

Smoore also has a strong R&D team. As disclosed in its IPO prospectus, Smoore has applied for more than 1,600 patents in China and abroad, of which more than 700 patents have been granted.

- Dominates the international vaporizer OEM/ODM market

US is Smoore's biggest market. Smoore's other key markets include: South Korea, Germany, France, Belgium, New Zealand, and South Africa.

Some of Smoore's corporate clients include Japan Tobacco, British American Tobacco, Reynolds Asia Pacific, ReLX and Njoy

- Less affected by the regulatory risk from the Chinese regulators

The Chinese market only makes up 18% of Smoore's 2020 business revenue, whereas more than 80% of ReLX's 2020 revenue came from Mainland China. It is pretty apparent which company is going to be more susceptible to regulatory risk of the Chinese regulators.

- E-cigarette OEM and ODM business enjoys astonishingly high profit margin.

Guess how many percent Smoore's Return on Equity is expected to be for the next 3-5 years? An compounded annualized growth rate of 35% to 37% for the next 3-5 years is anticipated by the Street.

- The e-ciggarette industry is expanding at an exponential growth rate.

This translates to EPS growth Y-o-Y of the industry players; for instance, Smoore's Expected EPS Growth Rate 2021/2020 is at +123%.

The high industry expansion speed also makes Smoore out of cash flow worries and can continue to invest into R&D, as Smoore's free cash flow per share in 2021 reached 1.07 HKD/share, from 0.57 HKD/share in 2020.