Market Cap Plummets 90%! "Hunan's Richest Man" Chen Zhiping's Smoore International Revenue Growth Slows, Gross Margin Hits New Low

Once dubbed the “TSMC of the e-cigarette industry,” the former Hong Kong stock superstar SMOORE International (06969), is currently experiencing its darkest hours following the annual report disclosure.

On March 20, the stock closed down 1.1%, marking the third consecutive trading day of decline after the 2025 full-year performance was announced. In the previous two trading days, the stock plunged by 19.61% and 5.61% respectively, with a total drop of over 24% in just three days, erasing more than HKD 10 billion in market value.

Looking at the longer-term trend, compared to the peak of HKD 23.87 on August 23, 2025, the stock has fallen more than 62%. Since its all-time high market cap of over HKD 5,200 billion in 2021, it has declined by over 90%, with a loss of more than HKD 4,600 billion in market value, bringing its valuation down to the lowest levels since listing.

The core trigger for this round of market revaluation is SMOORE’s “rising revenue, falling profit” annual report. Despite achieving a record high revenue of HKD 14.26 billion in 2025, up 20.8% year-over-year, profit did not follow suit. Instead, net profit attributable to shareholders declined by 18.5% to HKD 1.06 billion. Rising upstream raw material and labor costs—both in double digits—highlighted the inherent bargaining power issues of its ODM manufacturing model, pushing gross margin to a five-year low and continuously shrinking profitability in core business.

Although the company announced a high dividend payout ratio of over 200%, attempting to stabilize market sentiment with real cash, the failure to meet profit recovery expectations and the significantly lower-than-expected growth guidance for 2026 have triggered a reassessment of SMOORE’s valuation. The industry leader is now facing a valuation reset, prompting the market to question: with its high-growth halo fading, what is the long-term growth logic and profit boundary for SMOORE?

Gross margin hits five-year low, bidding farewell to the era of super profits

In absolute terms, SMOORE’s revenue continues to expand. In 2025, the group achieved a record total revenue of HKD 14.26 billion, a 20.8% increase. This was mainly driven by strong growth in its B2B segment and the commercialization of its heated tobacco (HNB) product line, which had been under development for a decade. HNB contributed over HKD 1.2 billion in revenue this year, becoming a key growth driver.

However, profit performance fell short of expectations. Despite a 20% revenue increase, net profit was only HKD 1.06 billion, down 18.5% year-over-year. Even after adjusting for non-cash expenses like share-based payments, adjusted net profit was HKD 1.53 billion, a slight increase of 1.3%. This indicates that the company’s 20% revenue growth nearly did not translate into proportional profit growth.

The shrinking profit margin is visually reflected in the declining gross margin. Over the past five years, SMOORE’s gross margin has fallen from a peak of 53.6% in 2021 to 34.1% in 2025.

As an ODM manufacturer, SMOORE faces inherent pricing power constraints. Nearly 80% of its revenue comes from B2B clients, mainly large multinational tobacco companies. In 2025, raw material costs surged 27.9% YoY, accounting for over half of total revenue at 50.5%; labor costs also rose sharply by 38.5%. When upstream costs increase dramatically and the company cannot pass these costs onto customers through higher prices, profit margins are inevitably squeezed.

In its 2025 financial report, SMOORE admitted that the decline in gross margin and the rising proportion of raw materials and labor costs were mainly due to “product mix changes,” specifically an increased share of lower-margin products.

This product mix shift first manifested in the European market’s regulatory overhaul. As bans on disposable electronic vaping products took effect, SMOORE helped strategic clients launch compliant alternative products, boosting B2B revenue in Europe and other international markets by 38.5% to HKD 7.06 billion. However, to seize market share during the policy transition, SMOORE took on more low-margin compliant replacement orders, which, while increasing revenue, diluted overall gross margin.

Meanwhile, both the US and Chinese markets faced pressure. In the US, amid regulatory battles and growth bottlenecks, SMOORE’s B2B revenue grew only 2.1% to HKD 4.07 billion in 2025. Despite increased enforcement against non-compliant e-cigarettes, the black market’s size continues to impact the legitimate market, and its specialized atomization business is undergoing restructuring. In China, strict regulations and local market dynamics caused B2B revenue to decline another 10.9%, leaving it at about HKD 210 million.

The sluggish performance in China and the US, combined with increased low-margin product sales in Europe, forced SMOORE to sacrifice high-end ceramic core products—once capable of generating over 50% gross profit—to maintain order volume and market share.

In addition to declining gross margins, SMOORE also faced multiple cost pressures. In 2025, expenses for legal and compliance services surged 139.4% to HKD 270 million; litigation and settlement costs of HKD 180 million were accrued due to unforeseen events; and foreign exchange losses reached HKD 150 million, compared to a HKD 26.22 million gain in the previous year.

Excessive dividends and the “sky-high” options for the Yiyang billionaire

In the face of underwhelming performance, SMOORE launched a substantial dividend plan, attempting to offset negative sentiment with tangible shareholder returns.

The financial report shows that in 2025, the company paid nearly HKD 2.5 billion in cash dividends, with a payout ratio exceeding 200%, returning more than twice its net profit for the year. Even in 2021, when net profit nearly reached HKD 5.3 billion, dividends were lower than in 2025.

Where does this confidence come from? As of the end of 2025, SMOORE held HKD 7.32 billion in cash and equivalents, with no bank or other borrowings. However, the net cash flow from operating activities was only HKD 490 million, a sharp decline of over 70% from the previous year. With its core business’s “cash-generating” ability weakening, why does the company insist on distributing over 200% of its profits?

A closer look at the ownership structure reveals that the largest beneficiary of this HKD 2.5 billion payout is the core management team led by actual controller Chen Zhiping. The latest data shows Chen Zhiping, through wholly owned platforms, holds 33.5% of the shares, approximately 2.074 billion shares. Based on this stake, Chen Zhiping alone could receive about HKD 830 million in cash from this dividend.

As the founder of SMOORE, Chen Zhiping capitalized on the explosive growth of the e-cigarette sector, reaching a peak market value of over HKD 1.5 trillion in 2021, briefly becoming Hunan’s richest person and consistently ranking among Yiyang’s top wealthiest. He is one of the most prominent entrepreneurs in China’s e-cigarette industry. However, compared to his peak wealth, SMOORE’s market value has now evaporated by over HKD 4,600 billion, and Chen’s personal wealth has shrunk significantly.

Nevertheless, Chen still holds a “sky-high” stock option incentive tied to a lofty market cap goal. According to a December 2024 announcement, the board may grant Chen Zhiping 61 million share purchase options, with long-term incentives that are not based on profit but directly linked to the company’s future market value. The plan sets three strict thresholds: between 2025 and 2030, the company’s closing market cap must be at least HKD 3000 billion, then HKD 4000 billion, and HKD 5000 billion for 15 consecutive trading days to unlock 30%, 60%, and 100% of the options, respectively.

The reality, however, is sobering. As of now, SMOORE’s market cap hovers around HKD 560 billion, still far from the lowest threshold of HKD 3000 billion—almost six times the current level. With ongoing profit pressures and declining core competitiveness, this “long-term” incentive, once seen as aligning management and shareholder interests, now appears more like an unfulfilled promissory note.

As this former “e-cigarette TSMC” giant sheds its high-growth halo and faces intense OEM competition, what valuation should it truly command?

Does SMOORE deserve the “TSMC of e-cigarettes” valuation?

The market’s re-evaluation of SMOORE must be viewed in a historical context.

In July 2020, SMOORE listed on the Hong Kong Stock Exchange, riding the wave of exploding global e-cigarette penetration, with its market cap soaring past HKD 5000 billion.

However, from the second half of 2021, as domestic e-cigarette taxes were implemented and global regulations tightened, the stock price tumbled from over HKD 90 to a low of about HKD 4.5 in early 2024. Although share buyback expectations and stock options provided some valuation support, the peak was long gone.

To understand SMOORE’s current valuation logic, it’s instructive to compare it with its major client—domestic e-cigarette leader RLX Technology (RLX.N).

Founded in 2018, RLX’s core brand RELX covers closed-system e-cigarettes and pods. As a consumer-facing brand, RLX rapidly expanded through multiple funding rounds and offline channels, capturing over 60% market share domestically and listing on NASDAQ in January 2021, with an initial peak share price above $30.

In absolute revenue, SMOORE’s HKD 14.26 billion remains enormous. In comparison, RLX’s 2025 revenue was about HKD 3.96 billion, roughly a third of SMOORE’s.

But the key difference lies in profit conversion and growth trends. In 2025, RLX’s international expansion (with 76.5% of Q4 revenue from overseas markets) drove 44% revenue growth and a strong profit increase, with net profit reaching HKD 930 million. Conversely, as an ODM manufacturer, SMOORE’s hundreds-of-billion revenue has not translated into proportional profit growth; instead, net profit declined 18.5% YoY, ending at HKD 1.06 billion. The profit margins of these two companies are diverging rapidly.

This reality—where a manufacturing giant spends hundreds of billions on materials and labor but earns relatively modest profits—exposes the core pain point of ODM manufacturing.

As of March 20, RLX, now in a profit-uptrend, traded around $2.20, with a market cap of approximately $2.68 billion and a P/E ratio (TTM) of about 20. Meanwhile, SMOORE, under continued pressure with record-low gross margins, still commands a high valuation—nearly 50 times earnings, with a market cap of around HKD 560 billion.

The market’s current debate over SMOORE stems from this disparity. Investors are reassessing whether, in the new normal of declining margins, global compliance, and high fixed costs, a heavily asset-heavy manufacturing company deserves such a premium “tech innovation” valuation.

Undoubtedly, SMOORE remains one of the most technically advanced giants in the global vaping industry. Its long-anticipated HNB business surpassed HKD 1.2 billion in 2025, and its early forays into medical atomization hint at long-term potential to cross over from traditional tobacco support to a broader health platform.

But the immediate challenge is clear: before the HKD 5000 billion market cap vision materializes and before new businesses truly restore profit margins, SMOORE must confront the harsh reality of increasingly difficult profitability in OEM manufacturing. As the myth of wealth creation gradually fades, the company’s decision to use cash for over 200% dividend payout may be a rational move by major shareholders in uncertain times, and perhaps the only tangible reassurance management can offer long-term investors amid the ongoing valuation reset.