On Thursday, UBS analysts revised their rating on Smoore International Holdings Limited (6969:HK) (OTC: SMORF) stock, lowering it from Neutral to Sell and adjusting the price target to HK$10.72, up from the previous HK$7.50. The downgrade is primarily attributed to the stock's perceived overvaluation and a conservative outlook on the earnings potential from British American Tobacco (NYSE:BTI)'s (BAT (LON:BATS)) new heat-not-burn (HNB) products.
Smoore International's stock price experienced a significant 35% surge following BAT's announcement of the HNB product launch during its Capital Market Day, reflecting investor optimism. However, UBS anticipates BAT will officially release this new product in the second half of 2025, with substantial results becoming evident from 2026 onwards.
The current trading value of Smoore International at approximately 42 times its projected 2025 earnings (PER) stands in contrast to the global tobacco industry's average PER of 11 and the 34 PER of its Chinese consumer peers, leading UBS to consider the stock overvalued. UBS's earnings projections are notably 119% lower than the consensus, suggesting a more cautious stance on the company's financial outlook.
UBS also outlined potential catalysts that could affect the stock, including results for 2024 that may fall short of expectations and a slower-than-anticipated rollout of BAT's new HNB product. These factors contribute to the rationale behind the revised rating and price target for Smoore International.
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