Core view
Weekly review of the sector: the new tobacco sector fell – 1.41% this week, underperforming the CSI 300 index by 0.47 PCT and outperforming the CSI 500 index by 0.78 PCT. In terms of individual stocks, fogcore technology, Huabao international and Eve Energy Co.Ltd(300014) rose the most this week, rising 60.4%, 14.14% and 10.99% respectively; Smore international, Zhuhai Rundu Pharmaceutical Co.Ltd(002923) , Shandong Jincheng Pharmaceutical Group Co.Ltd(300233) decreased by 9.18%, 6.76% and 6.01% respectively.
Zhou’s focus: 1) several e-cigarette brands announced to stop production of non tobacco flavor products. After the measures for the administration of e-cigarettes explicitly banned non tobacco flavors, a number of e-cigarette brands have responded in succession. Following Yueke, grapefruit, vita and Bolan, a number of e-cigarette brands such as Jigan, Magic Flute, Keyi, Kemi, Baide, Mirui, Lingdong and firearms also announced that they would stop producing fruit and other flavor products in the Chinese market. China’s e-cigarette sales channels have entered a critical transition period. After the administrative measures officially came into force on May 1, the existing channel inventory products may face a comprehensive ban.
2) the net profit of China Tobacco Hong Kong in 2021 increased by 638% year-on-year. On March 14, China Tobacco Hong Kong released its financial report for 2021, with a revenue of HK $8.064 billion, a year-on-year increase of 131%, and a net profit of HK $703 million, a year-on-year increase of 638.3%. Excluding the income from the deemed sale of the joint venture, China Tobacco Hong Kong realized a net profit of HK $311 million, a year-on-year increase of 193%. The net profit of the company increased significantly in 2021, mainly due to the delayed shipment of tobacco imported products in 2020, which successively arrived in Hong Kong before December 31, 2021, resulting in a significant increase in the import business income and profit of tobacco products in 2021 compared with 20 years.
Investment suggestion: the long-term development of China’s e-cigarette will be based on the product characteristics of new tobacco, such as reducing harm and helping to quit smoking, and will develop orderly and steadily under supervision. With the active promotion of policies, the clearing of unqualified products and production capacity will be accelerated to promote the concentration of market share. The leading enterprises operating in compliance with the industry are expected to further increase the market share. It is suggested to pay attention to the global atomization OEM leader smore International (6969. HK) with leading technical strength, and the Shenzhen Jinjia Group Co.Ltd(002191) ( Shenzhen Jinjia Group Co.Ltd(002191) . SZ) with the layout of the new tobacco whole industry chain and close cooperation with China tobacco.
Risk warning: industry regulatory policies exceed expectations; The market demand is less than expected; Intensified market competition; Technical iteration and update; Price fluctuation of raw materials; Repeated outbreaks outside China have impacted channel sales; Macroeconomic pressure.
