Calculate the medium-term scale and long-term space of atomization, HNB, tobacco flakes, synthetic nicotine, cigarette sets and other markets
1. User scale: harm reduction trend + scientific and technological innovation + policy name correction, with broad long-term growth space. Since November 2021, the regulatory attitude of who and FDA has improved, which is conducive to the high-quality growth of the industry worldwide. (1) User preference: among Chinese e-cigarette users in 2021, old smokers accounted for 98.5%. The main reason why consumers choose e-cigarettes is health harm reduction. 55% of e-cigarette users’ consumption is driven by the desire to quit smoking, and 73% choose preferential purchase; (2) Medium term calculation: Based on assumptions, we believe that by 2030, there will be nearly 100 million e-cigarette users in China and nearly 300 million users worldwide. The penetration rate of Chinese and global e-cigarettes among smokers is expected to reach 26.00% and 25.43% respectively. The user scale and penetration rate are about four times higher than that in 2021. (3) Long term space: if referring to the penetration improvement path of the United States, the national penetration of e-cigarettes has 4 times the growth space. Since 2005, the penetration rate of e-cigarette users in the United States has increased from 0 to 5.5%. In China, after seven years of development from 2013, the user penetration will reach 1.1% in 2020. In terms of time dimension, there may be no significant difference in the development process of e-cigarette industry between China and the United States. Therefore, we expect that after about 8 years, China is expected to reach a mature e-cigarette market like the United States. Referring to the national penetration promotion path of e-cigarette users in the United States, it is expected that the national penetration of e-cigarette users in China will increase by more than 4 times compared with 2020 in 8 years, and the user scale CAGR will reach 22.28%.
2. Atomization Market: export and domestic sales make two-way efforts and are optimistic about the long-term development space. As a major producer of new-type tobacco, China’s export scale has increased year by year, with an export of 138.3 billion yuan in 2021, while the sales of atomized e-cigarettes in China is only 19.7 billion yuan. Although China’s atomization market in 2021 increased by 36% year-on-year compared with that in 2020, there is still much room for horizontal comparison. Compared with the global market, according to the data of e-cigarette Committee, the global new tobacco market scale was 527.9 billion yuan in 2021, with a year-on-year increase of about 115%. The sales of atomized e-cigarettes in China accounted for only 4% of the global market; Compared with the traditional tobacco market, the penetration rate of atomized electronic cigarettes in China in 2021 was only 1.1%. If we refer to previous data and overseas markets, we have calculated the scale and space of China’s atomization market respectively: (1) medium term calculation: Based on assumptions, the scale of China’s atomization e-cigarette market is expected to exceed 200 billion yuan in 2030, an increase of 9.2 times compared with 2021, and the category penetration rate is 9.5%; The global scale of new tobacco is expected to exceed US $270 billion, an increase of 2.3 times over 2021, and the category penetration rate will reach 25.6%. (2) Long term space: the atomized electronic cigarette market in the United States is relatively mature, with a person time penetration rate of 5.5% and a category penetration rate of 6.8% in 2020. Taking the U.S. market as a reference, from the dual perspective of category penetration and person time penetration, this paper calculates the Chinese market space under conservative, neutral and optimistic scenarios through two methods. On the whole, we believe that under the assumption of neutral scenario, the market space of atomized e-cigarette in China is expected to reach 140-210 billion yuan, which is 6.1-9.7 times larger than that in 2021.
3. HNB Market: Japan and South Korea lead the world, and the Chinese market ranges from 0 to 1. (1) Market scale: HNB’s global market scale has a high growth rate, and Japan accounts for the highest proportion in the global market. In 2020, the global HNB market scale was USD 20.7 billion, yoy + 34%. In 2020, the market scale of Japan / South Korea / Eastern Europe / Western Europe accounted for 43% / 8% / 21% / 20% respectively. The global HNB category penetration rate is only 2.4%, of which the HNB penetration rates of Japan / South Korea / Eastern Europe / Western Europe are 21.3% / 9.7% / 6.8% / 2.3% respectively, with large space in the future; (2) Medium term calculation: Based on assumptions, we calculate that the global HNB market scale in 2025 and 2030 will be US $71.1 billion and US $163.9 billion respectively, and the global HNB category penetration rate will be 7.0% and 14.2% respectively. Assuming that the penetration rate of China’s HNB category in 2025 and 2030 is 8% and 15% respectively, it is estimated that the market scale of China’s HNB in 2025 and 2030 will be 160.2 billion yuan and 341.7 billion yuan respectively; (3) Long term space: with reference to the development of the Japanese market, China’s HNB market space is 460-620 billion yuan under the neutral scenario.
4. Tobacco flake Market: HNB high-frequency consumables. Based on the assumption, the long-term HNB flake space is expected to exceed 35 billion yuan. (1) demand: HNB the amount and importance of tobacco slices and flavors are far beyond that of cigarettes. The amount of tobacco slices used in HNB can reach 9 times that of traditional cigarettes, while the addition amount of flavors in HNB tobacco slices can reach about 2.5%, which is ten times the number of traditional cigarettes. (2) Medium term calculation: continuing the previous calculation results of global and Chinese HNB market scale, we estimate that in 2025, the global tobacco sheet market scale is expected to exceed 54 billion yuan (cigarette 27.5 billion yuan + hnb27.1 billion yuan), and China’s tobacco sheet market is expected to exceed 36 billion yuan (cigarette 27 billion yuan + hnb9.6 billion yuan); (3) Long term space: Based on the scale of cigarette market in 2020, if we calculate with reference to the penetration rate of HNB category in Japan and the smokeless transformation trend of global tobacco leader, we believe that under the scenario of HNB category penetration rate of 24% and sheet unit price of 300 yuan / kg, the tobacco sheet market space (excluding cigarettes) brought by HNB in China in the future is expected to exceed 44 billion yuan.
5. Synthetic nicotine Market: China can only use extracted nicotine, and the overseas market has broad prospects. Nicotine, commonly known as nicotine, has a wide range of applications. Synthetic nicotine is better than extracted nicotine. The measures for the administration of electronic cigarettes (Exposure Draft) issued in December 2021 stipulates that China can only use nicotine extracted from tobacco, and synthetic nicotine is mainly supplied for export. (1) Scale calculation: Based on assumptions, we calculate that the total demand for nicotine brought by atomization and HNB in overseas markets is expected to exceed 11 million tons in 2025 (8.81 million tons of atomization + 8.8 million tons of HNB 2); (2) Calculation of demand space: with reference to the U.S. market, it is considered that the demand space for nicotine in overseas atomized e-cigarettes (excluding HNB) is expected to exceed 110 billion tons under the scenario assumption of 40% of overseas smokers’ atomized smoke penetration rate and 5.8-day average single user change cycle.
6. Cigarette set Market: HNB and atomized cigarette set have a long-term space of more than 23 billion yuan or 7 billion yuan. China’s atomized and HNB cigarette sets have a broad market space. We expect that under the neutral scenario, the market space of HNB cigarette sets will be 18.8-30 billion yuan and that of China’s atomized cigarette sets will be 6.38-7.64 billion yuan.
7. Value distribution: the midstream leaders tend to be concentrated, and the value of the channel end accounts for a large proportion. (1) Industrial chain: the upstream is scattered, and the leading enterprises in the midstream are concentrated. Low technical threshold and concentration of upstream raw materials; Midstream manufacturers have technical patents, scale and customer barriers. For example, smore has the leading number of international patents (1272 by 2021h1) + deep binding key customers, has strong bargaining power, and is expected to further improve its sales share on the basis of 19% in 2020; Midstream brand leaders such as fog core technology show an increasing trend of concentration due to the occupation of consumers’ minds, channels and R & D advantages. (2) Value chain: at present, the value of channel side accounts for more than half, and the profitability of manufacturers is strong. Taking Yueke cigarette stick + cigarette cartridge package as an example, it is estimated that the value of channel end accounts for about 58%, which is much higher than that of brands and manufacturers; (3) Pattern evolution: the industrial head effect is significant, and the whole industrial chain is expected to develop in a coordinated manner in the future. We believe that future manufacturers may achieve sustainable high profits by relying on core technologies. At the same time, the concentration of e-cigarette industry will be further improved in the future to drive the coordinated development of the whole industrial chain; 1) Brands: leading brands are willing to bind with excellent manufacturers in consideration of the scarcity of core technologies and the need to explore the market; Leading brands can effectively make up for the weak links in the industrial chain, and the improvement of their concentration is expected to drive the overall improvement of the industrial chain; 2) Manufacturers: head manufacturers face the global market and are less affected by policy uncertainty; In the future, the innovation demand of the e-cigarette industry will increase, or only the leading enterprises can bear the product innovation cost. At the same time, the technical iteration of the leading manufacturers will be more demand-oriented, forming a new stage of coordinated development of the whole industry chain under the demand-based competition pattern; 3) Channel providers: after the implementation of the regulatory rules, the license will be issued, and the subsequent development of channel providers will be tested, or rely on channel management and customer resource management to build healthy and efficient channels.
Risk statement
There are errors in market space measurement based on assumptions or specific situations, the introduction of regulations and rules is less than expected, and the industry competition is intensified.
