Smoore International Q3 Profit Up 18% QoQ, but Export Tax Rebate Cancellation Weighs on Valuation
nashnova research
Smoore International (06969.HK) posted Q3 net profit of RMB 365 million, up 18% quarter-on-quarter, as US compliant-flavour deliveries began and HNB recovered; yet a full phase-out of export VAT rebates by April 2027 leaves a 13-percentage-point cost gap that now dominates the valuation debate.
Operations are healing — so why is the stock under pressure?
Q3 net profit hit RMB 365 million, up 15.2% year-on-year and 18% quarter-on-quarter. The operational recovery signal is clear.
On the same day, China's Ministry of Finance announced a second round of export VAT rebate cancellations. Combined with the first round, all finished e-cigarette devices will lose their rebates entirely. This means → the market is not pricing "how much Smoore earned this quarter" but "what the cost structure looks like after April 2027."
In plain terms = the company delivered a solid report card, but the referee just announced the rules are changing next season — investors are recalculating.
How big is the 13% rebate gap?
Smoore is the world's largest e-cigarette device manufacturer, with an extremely high export share. The 13% VAT export rebate has long been a key component of its profit structure.
After the first cancellation in April, China's monthly e-cigarette exports plunged to USD 694 million — down 20.9% YoY and 23.2% QoQ, a three-year low. This reflects real, data-backed damage, not a hypothetical.
Analysts warn that contract manufacturers may enter a "razor-thin or loss-making" phase, making accelerated industry shakeout unavoidable. For Smoore, the gap must be filled through product-mix upgrades or pricing power with clients.
Is the Q4 order rebound real demand or a window-rush?
The April 2027 enforcement date gives brands a rational incentive to stockpile. The precedent: ahead of the April policy change this year, overseas clients front-loaded purchases in Q1, driving a revenue spike that reversed in Q2.
This means → if Q4 orders do pick up, two explanations must be separated: genuine demand improvement versus a timing effect driven by the policy window.
Put simply = customers may not be ordering because they want more product — they may be ordering because "buy now or lose the rebate." Whether the rebound can sustain depends on which motive dominates.
What does the US compliant-flavour launch mean?
Q3 revenue from enterprise vaping clients reached roughly RMB 2.65 billion, up 16.4% QoQ, driven primarily by the US — Smoore began delivering fruit-flavoured and other compliant-flavour products for its anchor client.
The backdrop: in May 2026 the FDA approved non-tobacco, non-menthol e-cigarette products for the first time, with devices featuring government-ID age verification and Bluetooth pairing locks. In plain terms = US regulators are not banning flavoured e-cigarettes — they are redefining which flavoured products can be sold legally.
Anchor client British American Tobacco has launched four fruit-flavour SKUs, planning rollout to roughly 25,000 retail outlets by September and another 25,000 by November.
What risk do the export numbers reveal?
July 2026 China e-cigarette exports hit USD 1.047 billion, a year-to-date high. US-bound exports surged 53.5% YoY, accounting for 94.9% of the month's total incremental growth.
August data reversed immediately: US-bound exports swung to a 12.4% decline, and the growth engine shifted to the UK (up 51.4% that month). This means → current export growth is highly dependent on the order rhythm of a single market — concentration is both the source of volume and the source of volatility.
HNB — heat-not-burn tobacco devices — generated roughly RMB 397 million in Q3 revenue, up 33.2% QoQ but down 47.8% YoY due to a large-shipment base effect last year. Smoore has begun offering full HNB solutions to new clients, with incremental volume expected in Q4.
Has the earnings trough passed — and what comes next?
Adjusting for share-based compensation and medical-segment losses, Q3 net margin reached 12.54%, improving steadily YoY — cost discipline and product-mix gains are taking hold.
The rebate phase-out pressures industry-wide margins but may also accelerate the exit of low-end capacity. The market-share logic for the category leader remains intact.
The real test: can US compliant-flavour products and multi-client HNB volumes scale into a growth engine large enough to take the baton before the April 2027 buffer window closes? That is the core of the current pricing disagreement — and the checkpoint for any medium-term re-rating.
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