Smoore is going public in Hong Kong soon. For such a company that maintains high-speed revenue growth, what are the risk points worth paying attention to before investing?
The first is that Smoore’s main income comes from overseas sales, so the company has exchange rate fluctuations and trade friction risks.
From the geographical distribution of business revenue, the company’s electronic atomization products are mainly sold to the United States and European countries. According to the prospectus, from 2016 to 2019, the company’s main operating income mainly comes from China, the United States and other regions. Although the proportion of China’s income is increasing, it will only be 21% by 2019, and the income of the United States and other regions will still account for 79% by 2019.
Second is the dependence on overseas distributors.
Smoore uses the overseas distributor sales model. As of the end of 2019, the company has 260 distributors worldwide, mainly in the United States, France and the United Kingdom. From 2016 to 2019, the revenue generated by the company’s distribution model accounted for 26.9%, 44.4%, 50.4% and 31.0% of the company’s total revenue, respectively. Since some distributors have a relatively short relationship with the company, the company advised in the prospectus that if the orders of any of the company’s major distributors are reduced, delayed or cancelled, most of the company’s business will be reduced.
The third is the risk of excessive concentration of customers.
According to the company’s prospectus, from 2016 to 2019, the company’s top five customers accounted for 73.7%, 65.6%, 55.3%, and 63.0% of the company’s total revenue respectively, accounting for a relatively high proportion. Therefore, the company faces a rick of high concentration of the top five customers. And among the top five customers in 2019, four of them are overseas customers, whose revenue accounts for 51% of the company’s total revenue in 2019. The global outbreak of the novel cronavirus pneumonia epidemic has hindered trade between countries and the company’s overseas business by certain.
The fourth is policy risk.
The company has 21% of its income from domestic. There is great controversy over e-cigarettes in China, and regulation is becoming stricter. In November last year, the State Tobacco Monopoly Administration and the State Administration of Market Regulation and Administration jointly issued the “Notice on Further Protecting Minors from E-cigarettes”, urging e-cigarettes Production and sales enterprises or individuals close the e-cigarette Internet sales website or client in time, e-commerce platforms close e-cigarette stores and remove e-cigarette products in time, and e-cigarette production and sales enterprises or individuals withdraw e-cigarette advertisements published through the Internet. During the two sessions in May this year, some delegates suggested that as e-cigarettes gradually become a new source of harm to public health and environmental pollution, and suggested that China should gradually ban the production and sale of e-cigarettes.
The above risks are from the Smoore company’s prospectus, noticing them before investing would make your consideration more complete and wiser.