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Simol International third quarter net profit fell 42 percent, individual big customers cut prices caused by revenue decline

Simol International third quarter net profit fell 42 percent, individual big customers cut prices caused by revenue decline

2022-10-17

Electronic atomization equipment contract manufacturer Simer International third quarter total revenue and net profit fell year-on-year. On October 14, Simol International Holdings Co., LTD. (Simol International, 06969.HK) announced that the three months ended September 30, the unaudited group period total comprehensive income of 704.4 million yuan, the same period of the previous year is 1,219.3 million yuan, down 42.2%; Total unaudited group period comprehensive income for the nine months ended September 30 was $2,088.5 million, compared with $4,0982 million in the same period last year, a decrease of 49.0%.


In the three months ended Sept. 30, the unaudited group's adjusted net profit was 721 million yuan, down 42.3% from 1,248.8 million yuan a year earlier, according to the company's financial disclosure. Unaudited group adjusted net profit for the nine months ended September 30 was $2,157.3 million, down 48.9 per cent from $4,2241 million a year earlier.


In a statement, Symol cited three main reasons for the decline in total third-quarter earnings: First, the gross profit margin decreased year-on-year, mainly due to the reduction of product prices for individual large customers in the first half of 2022, but the price remained stable compared with the second quarter of 2022. At the same time, the one-time atomization business with lower gross profit margin had a large growth, accounting for a higher proportion of the overall business.


Second, according to the established strategy, in order to enhance long-term competitive advantages and cultivate new growth areas, the Group continues to increase its R&D investment, especially in the basic research, medical and health fields of atomization technology. The R&D expenditure in the third quarter of 2022 increased significantly compared with the comparative period.


Third, in order to cope with the future long-term development needs and improve the group's management and marketing capabilities, the Group increased its investment in information systems, organizations and processes, marketing system construction and other aspects, resulting in a significant increase in administrative expenses and sales expenses compared with the comparative period, but remained relatively stable compared with the second quarter of 2022.


Moore international said in a statement, such as on June 29, 2020 of the prospectus, as related to employee incentive plan before the initial public offering of share option scheme related to spending the one-off nature of payment based on shares, performance management review group was not internally the project as a key operational or financial indicators. Therefore, the elimination of the impact of this item in the calculation of adjusted net profit better reflects the underlying operating performance of the Group and facilitates regular comparisons.


Share-based payment expenses related to Simer's pre-IPO share purchase program were $16.6 million in the three months ended Sept. 30, compared with $29.5 million a year earlier, the statement said.


According to its website, Simer International was founded in 2009 and is the listed entity of Shenzhen McWell Technology Co., LTD., with one self-owned brand (VAPORESSO) and three technology brands (FEELM, CCELL, METEX). Headquartered in Bao 'an District, Shenzhen, the group has nearly 20,000 employees. On July 10, 2020, Simol International was listed on the Stock Exchange of Hong Kong at the issue price of HK $12.40. On the first day of listing, it closed at HK $31 per share, with a total market capitalization of HK $178.05 billion.


According to the company, Simer International manufactures electronic atomization designs and electronic atomization components for heating and non-burning products based on ODM, which are sold to tobacco companies, independent electronic atomization companies and retail customers. According to media reports, in addition to domestic Yuetke, Magic Flute, pomelo and Snow, Simer International also manufactures products for big customers such as British American Tobacco (BAT), whose Vuse series is currently the No. 1 e-cigarette in the United States, competing with Juul.


In March 2021, the Ministry of Industry and Information Technology publicly solicited opinions on the amendment of the Regulations on the Implementation of the Law of the People's Republic of China on Tobacco Monopoly. The opinions proposed that e-cigarettes and other new tobacco products should be implemented according to the relevant provisions on cigarettes in the Implementation Regulations. The announcement of the day, e-cigarette concept stocks plunged, the next day, Simol International shares in Hong Kong also plunged 27%.


In March 2022, the State Tobacco Monopoly Administration issued the "Measures on the Administration of E-Cigarettes," which clarified the regulations on the supervision of e-cigarettes and other new tobacco products, and the flavor of e-cigarettes was clearly limited to tobacco flavor. On October 1, 2022, two major regulatory measures, the Measures for the Administration of E-Cigarettes and the Mandatory National Standards for E-Cigarettes, took full effect and went into effect.


In September, Western Securities pointed out in the Review Symol semi-annual report that the company's European and other markets are performing well, and the Chinese and American markets have entered a period of industry adjustment. The repeated COVID-19 outbreak in the first half of 2022 had a certain negative impact on the company's production, supply chain and logistics.


Western securities is expected that with the tightening of industry regulation, the future pattern of the industry will be concentrated, Simer International is expected to long-term earnings. Western securities also in the report to make risk tips: demand is less than expected, regulatory efforts exceed expectations, new business development is less than expected.


As of October 14, Symol International closed up 2.84 per cent at HK $9,400, giving it a total market capitalisation of HK $57.133 billion. The company's total market value has fallen 67.9 per cent since its first day of trading. Compared with the highest market value after listing (which exceeded 500 billion yuan), the total market value of Simer International has fallen by nearly 90%.


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