Event: on February 22, 2022, the Ministry of public security, the State Administration of tobacco, the State Administration of market supervision and administration and the Bureau of Education jointly issued the special work plan for cleaning up and rectifying the sale of e-cigarettes to minors and severely cracking down on crimes involving e-cigarettes (hereinafter referred to as the plan), which will be from now until the end of April 2022, We will launch a special clean-up and rectification work against the illegal sale of new drugs such as e-cigarettes and "top e-cigarettes" to minors.
China's regulatory action on the sale of e-cigarettes to minors has been continuously promoted, laying the foundation for the implementation of subsequent regulatory policies. On August 28, 2018, the General Administration of market supervision and the tobacco bureau announced that various market entities should not sell e-cigarettes to minors; On November 1, 2019, in order to prevent the inducement information implied in Internet advertisements, the two ministries and commissions further issued a document requiring the withdrawal of e-cigarette advertisements published through the Internet to prevent minors from knowing, buying and smoking e-cigarettes through the Internet; On June 18, 2021, the two ministries and commissions issued a special action plan to protect minors from tobacco abuse, improve the distance standards around primary and secondary schools and kindergartens by category, implement the investigation and registration of cigarette sales outlets, and speed up the clean-up of illegal outlets. The special action is consistent with the starting point and direction of previous regulatory actions. The regulatory body has increased the Ministry of public security and the Bureau of education to continue to deepen the protection of minors. We believe that the strengthening of protection measures for minors is a positive signal for the industry, which means that the industry will go further on the road of channel standardization and lay the foundation for the implementation of subsequent regulatory policies.
Preventing minors from using e-cigarettes is the focus of supervision in various countries, and head brands have implemented a more strict verification system. Preventing minors from buying and using e-cigarettes has always been the top priority of the supervision of the e-cigarette industry in various countries, and it is also an important link for the legal and standardized development of the industry. For example, the U.S. Food and Drug Administration FDA implements all-round control over the process of e-cigarettes from production and manufacturing, marketing to product sales, so as to reduce the use of atomized e-cigarettes by minors. As a substitute product with obvious harm reduction effect, the core users of e-cigarette are traditional smokers. The protection action against minors will not affect the market capacity and growth slope of e-cigarette industry. At the same time, China's head e-cigarette brands have already verified the age of consumers through a variety of technical means, so as to minimize the purchase and use of e-cigarettes by minors. For example, Yue Xi enacted the "Xiangyang flower system" in December 2019. Consumers must complete the three verification of name + ID number + face recognition before buying. At the same time, the system can check whether the store sells products to minors by violating big data. Chinese e-cigarette brands have a high awareness of compliance. Violations of selling e-cigarettes to minors mostly occur in small and medium-sized brands. The promotion of special work is expected to promote the gradual liquidation of small and medium-sized brands with chaotic management and further improve the industry concentration.
Investment suggestion: according to Frost & Sullivan, the compound growth rate of global atomized e-cigarette retail sales will reach 25.9% from 2016 to 2020, and the retail sales will reach US $7.67 billion in 2020, but the estimated penetration rate is only 4.3%, and the penetration rate of e-cigarette industry is still low. We believe that the release of the special work plan is a further standardization of the industry and lays a foundation for the implementation of subsequent supporting policies and promoting the industry to embark on the road of legal development. At the same time, preventing minors from using e-cigarettes does not conflict with the harm reduction attributes of e-cigarettes, and will not disturb the growth space of the industry. It is suggested to actively grasp the layout opportunities under the callback affected by market sentiment. Continue to recommend [smore international], which is a leading industry in atomization technology and lays solid barriers; It is suggested to pay attention to China's electronic cigarette faucet [fog core technology] with high callback range; Close cooperation with China tobacco, layout of flavors and fragrances, valuing [ Shenzhen Jinjia Group Co.Ltd(002191) ] with high price performance ratio. Enterprises with thick slurry flake production technology [ Anhui Genuine New Materials Co.Ltd(603429) ].
Risk tip: the time of subsequent policies is uncertain, channel supervision may affect the short-term fluctuation of the industry, insufficient supply of raw materials, intensified industry competition, etc.
