Event: on March 11, the State Tobacco Monopoly Administration issued the national standard for electronic cigarette (second draft for comments) for public comments; On the same day, the State Tobacco Monopoly Administration issued the measures for the administration of electronic cigarettes, which will come into force on May 1, 2022.
Comments:
The new national standard of e-cigarettes attaches importance to the protection of minors and strict taste restrictions. The national standard of electronic cigarette (second exposure draft) requires that the atomized material should contain nicotine; The cigarette set and cigarette cartridge using electronic cigarette liquid shall have a closed structure to prevent artificial filling, and shall have good sealing without liquid leakage. The new national standard attaches importance to the protection of minors and requires that electronic cigarette sets should have the protection function of preventing children from starting and accidental starting. In terms of taste, the new national standard requires that the atomization design should not induce minors, and should not make the characteristic flavor of the product show other flavors except tobacco. It can allow the additives to be reduced from 122 in the previous version to 101, and reduce many flavoring ingredients such as plum extract, lavender oil and lemon oil. Compared with the FDA allowing e-cigarettes to have two flavors of tobacco and menthol, China’s taste restrictions are more stringent.
The measures for the administration of electronic cigarettes will be officially implemented on May 1. The measures for the administration of e-cigarettes will be officially implemented soon, which makes clear provisions on the production, sales, transportation, import and export, supervision and administration of e-cigarettes in China. The changes between the management measures and the previous draft are mainly reflected in: (1) improving the listing requirements of e-cigarette products. Relevant departments will conduct technical review on e-cigarette products according to inspection and testing reports and other application materials, and establish a sampling inspection and testing system for e-cigarettes to strengthen the continuous supervision of products; (2) Reduce the supervision of e-cigarette products only used for export, and delete the provision that “enterprises producing e-cigarette products not sold in China and only used for export shall register their products in accordance with the regulations and obtain the license of tobacco monopoly production enterprises”; (3) The exclusive sale of e-cigarettes by retail enterprises is prohibited.
Taste restrictions suppress demand in the short term, and regulation is officially implemented. The industry is expected to accelerate the reshuffle. At present, the proportion of tobacco flavored e-cigarette products in China’s e-cigarette market is only about 5%, and the vast majority of terminal stores are mainly seasoning products. Therefore, we believe that the taste restriction of e-cigarettes only allows the short-term taste of tobacco or has a great impact on the end demand. At the same time, the establishment of e-cigarette trading management platform, the standardization of e-cigarette sales methods, and the investigation and punishment of the production and sales of fake and shoddy e-cigarette products, aerosols, nicotine for e-cigarettes and other acts of infringement of intellectual property rights, illegal operation, smuggling and other acts will accelerate the liquidation of enterprises at the end of the industry, Leading brands are expected to benefit from compliance and high-quality products and the comprehensive layout of technical patents, and the industry concentration may be accelerated.
Investment suggestion: the official implementation of industry supervision is expected to promote the standardized, healthy and orderly development of China’s e-cigarette industry. The leading enterprises in all links of the e-cigarette industry chain with leading technology advantages and low compliance cost still have broad growth space. We suggest paying attention to the new tobacco track with comprehensive card position and Shenzhen Jinjia Group Co.Ltd(002191) , which has a leading layout in the field of atomization and HNB; And smore international, which has advanced ceramic atomization technology, excellent performance growth and high cost performance.
Risk tip: policy control is stronger than expected, industry competition intensifies, and downstream demand is weak.
