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(1) All information, opinions, and analyses in this article are for industry research purposes only and do not constitute investment advice.
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Smoore International Holdings Limited (06969.HK) announced a series of market value and performance-linked equity incentive plans on December 27, 2024. This bold move, primarily aimed at Chairman Chen Zhiping, has drawn significant attention due to its unique tie to the company’s market capitalization—a relatively rare practice in global capital markets. To better understand the rationale, market implications, and future growth logic behind this plan, 2Firsts interviewed Cinda Securities Research Center’s Manager of New Consumer Research, Wenqiang Jiang, and New Consumer Analyst, Chen Li.
Cinda Securities Analyst Insight: How Smoore’s Ambitious Incentive Plan Reflects Market Confidence
Wenqiang Jiang highlighted that equity or stock option-based incentive plans for executives are common in listed companies, with the primary aim being to align management’s interests with the long-term goals of the company. By granting stock options or equity, companies can effectively strengthen the sense of shared responsibility among the management team, especially for those who are new to the company or temporarily do not hold shares.
What stands out in Smoore's plan, however, is the inclusion of "market value" as a key performance metric—an unusual move in comparison to the more common focus on metrics like revenue or net profit. Jiang noted that Tesla, with its high-profile CEO Elon Musk, is one of the few companies that has used market value as a core component in executive incentive schemes.
According to the announcement, if Smoore's market value rises from its current valuation of around HKD 80 billion to HKD 300 billion, 400 billion, or even 500 billion, Chairman Chen Zhiping’s potential returns could see significant increases. With an exercise price of HKD 11.26, if the stock price rises to HKD 48-50, Chen could gain about HKD 37-39 per share after deducting the exercise price. Upon exercising the options and cashing out, the Chairman could make hundreds of millions of Hong Kong dollars in profit. As Smoore strives to hit even higher market value targets, the potential returns would grow accordingly.
Additionally, Jiang pointed out that this plan isn’t just targeting Chairman Chen alone. Smoore has also introduced two other incentive plans aimed at the company’s broader management team. These plans focus more on individual performance and achievement of specific business objectives, with the unlocking period extending until 2030. The core goal of these plans is to ensure the long-term retention of senior executives and core teams, encouraging continued investment in the company’s international expansion and new tobacco business initiatives.
Smoore’s Long-term Market Goals: Elevating Valuation and Employee Commitment
Regarding the timing of the announcement, Chen Li believes that revealing such incentive plans at the end of the year is a strategic move to convey confidence in the company's long-term growth. The clear timeline for assessment and unlocking, which spans from 2025 to 2030, underscores Smoore's commitment to future growth and sends a reassuring message to the capital market, management, and employees alike.
Jiang added that in the past two years, Smoore faced uncertainty due to domestic market contraction and the rampant spread of illegal products overseas. As a result, some investors adopted a wait-and-see attitude toward the company’s prospects. Through a large-scale, long-term equity incentive plan, with market value targets as high as HKD 300 billion to 500 billion, Smoore aims to reinforce its optimistic outlook for the future growth of its new tobacco business—especially the Heated Not Burned (HNB) segment.
Global Regulatory Landscape and Smoore’s Path to Market Leadership
Looking ahead, the regulatory environment is expected to continue to shape the future of the tobacco and vaping industry. Jiang pointed out that while Smoore is currently seeing positive outcomes from its compliance-driven efforts in overseas markets, particularly in the U.S., the company’s experience in the HNB sector will play a crucial role in shaping its future growth. International regulatory advancements—especially in the U.S.—have paved the way for legitimate products to secure more space in the market, allowing Smoore’s expertise in the Pod- system e-cigarette market to shine through.
HNB and Vaping: The Dual Engines Driving Smoore’s Future Growth
Regarding the company’s focus on the HNB sector, Jiang noted that British American Tobacco’s HILO products have shown strong performance and positive feedback from the market. As a key solutions provider in the HNB space, Smoore is well-positioned to tap into this growing demand and become a supplier for the new HILO products. If Smoore’s HNB shipments reach expected volumes by 2026-2027, this segment could become a major driver of the company's future profits.
Although Smoore also mentioned plans to expand into medical and beauty segments in its announcement, Jiang remains cautious about these areas, noting that, with limited publicly available information, it’s hard to predict their impact on the company’s market value in the short term. These new business areas are more likely to show tangible progress after 2027.
Smoore’s Performance in a Tough Market: Overcoming Regulatory Hurdles to Deliver Strong Results
Smoore’s growth trajectory in recent years has been shaped by increasing regulatory pressure in key markets, particularly the U.S. and Europe. These markets have been aggressively cracking down on illegal or non-compliant products, placing Smoore under pressure with domestic market shrinkage and the challenging compliance process abroad.
However, 2024 has marked a turning point for the company. Regulatory normalization in overseas markets—particularly the U.S.—has created a more favorable environment for legal e-cigarette products, enabling Smoore to see a return on its investments in Pod- system e-cigarette. Additionally, the launch of British American Tobacco’s Glo HILO Plus in Serbia has further boosted market confidence in the HNB segment, driving up Smoore’s stock price in 2024.
Looking Ahead: Smoore’s Path to Becoming a Global New Tobacco Powerhouse
Jiang concluded by saying that whether or not Smoore’s stock price continues to rise depends on the market performance of its new products, especially in the Pod- system e-cigarette and HNB segments. The company's ability to maintain competitive advantages in these areas, while navigating regulatory challenges, will ultimately determine its long-term success in becoming a global leader in the new tobacco industry.
Smoore’s Performance: Independent yet Interdependent with Industry Giants
When discussing the relationship between Smoore and its downstream clients, such as British American Tobacco, Jiang explained that while Smoore remains focused on research and development in the new tobacco field, its market value has substantial growth potential, particularly with the expansion of HNB products. In contrast, multinational tobacco companies like British American Tobacco still rely heavily on traditional cigarettes for a significant portion of their revenue and must invest substantial resources into distribution channels, brand promotion, and market competition.
Thus, the valuation logic and methodologies for Smoore and its downstream clients are not directly synchronized. There’s no automatic correlation between Smoore’s stock price increase and a proportional rise in its customers' stock prices.
Smoore’s Market Value Incentives: The Double-Edged Sword
Jiang also commented on the potential consequences if Smoore’s market value incentive targets are not met. He noted that there are no “penalty” clauses in the incentive plan.
If the market value targets are not reached, the Chairman or management team will simply not be eligible to exercise their options. For core management, the inability to cash in on stock options is a loss in itself.
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