Core view
China’s new-type tobacco policy has been gradually refined: since 2021, China’s new-type tobacco regulatory policy has accelerated. While increasing and improving industrial supervision, on the one hand, accelerate the industry to enter the standardized development stage, which is conducive to the long-term and healthy development of the industry, on the other hand, promote market integration, speed up the clearing of the production capacity of small and medium-sized enterprises and strengthen the market competitiveness of leading enterprises.
The national standard of e-cigarette specifies the specification of e-cigarette products: 1) upstream control, uniformly limit the source of nicotine, use nicotine extracted from tobacco, 2) limit the nicotine concentration of e-cigarette, and the detoxification effect of the product is reduced; 3) Oil filled electronic cigarettes are prohibited, and only closed small cigarettes are allowed to be sold; 4) Up to 122 flavors are allowed, with loose taste restrictions; 4) Refine technical standards to ensure the safe use of smoking utensils.
The management measures clarify the license management, or promote the reshaping of the market pattern: China’s e-cigarette market management is about to enter the era of standardization and transparency. The main impacts of the policy include: 1) the approval of the expansion of production end OEM plants, which is expected to benefit the head OEM enterprises; 2) The wholesale link at the sales end is purchased by China tobacco, which is expected to reshape the existing sales channel pattern; 3) The electronic cigarette trading platform is under unified management, laying the foundation for the introduction of the electronic cigarette tax system.
Investment suggestion: China’s e-cigarette industry regulatory policies have been accelerated to promote the orderly and healthy development of the industry. At present, the Chinese market is in the policy observation period. We believe that the upstream head OEM enterprises will benefit from the industry integration promoted by the policy. At the same time, the enterprises in all links of the industrial chain dominated by export business are relatively weak affected by China’s policies and have broad market development space. It is recommended to pay attention to smore International (6969. HK), Shenzhen Jinjia Group Co.Ltd(002191) (002191. SZ), Huabao International (0336. HK), Shandong Jincheng Pharmaceutical Group Co.Ltd(300233) (300233. SZ).
Risk warning: industry regulatory policies exceed expectations; Market demand is less than expected; Intensified market competition; Technical iteration update; Price fluctuation of raw materials; Repeated outbreaks outside China have impacted channel sales; Macroeconomic pressure.
