The E-Cigarette Industry Is Only Getting Hotter

The IECIE Vape Expo, the first major trade show in the vaping industry, opened in Shenzhen on April 16. As the city that accounts for nearly 90% of China’s vaping production capacity, Shenzhen has hosted the show since 2015, and this year marked its fifth edition.

As the vaping industry has surged ahead, the IECIE Expo has expanded as well—from 15,000 square meters of exhibition space, 183 exhibitors, and more than 40,000 attendees in 2015, to 40,000 square meters in 2019, with 1,500 brands from 45 countries and regions and 50,000 professional visitors alone.
 

“Although CCTV’s 3.15 Gala called out e-cigarettes, it was not a complete rejection of the new tobacco sector. Heat-not-burn e-cigarettes are the best alternative,” one exhibitor told Securities Times e Company. Observations at the venue showed that the vaping supply chain is already highly complete, spanning upstream lithium batteries and metalworking machinery to downstream assembly and e-liquid production. Most exhibitors were from the Pearl River Delta, especially Shenzhen.

Capital from all sides is also moving in faster. Exhibitors at the show included Shanghai Lvxin, which has an A-share background and is backed by Shunhao Co. and Dongfeng Co.; an e-cigarette booth from Hong Kong-listed Guilian Holdings; and Yunnan China Tobacco, with a state-owned background, which set up a large booth to launch multiple products.
 

In fact, several China Tobacco companies are already investing in heated tobacco products, such as Sichuan China Tobacco’s Kuanzhai, Yunnan China Tobacco’s MC, and Guangdong China Tobacco’s MU+ and ING.

Last year, Jinjia Co., a leading domestic tobacco packaging company, also deepened its ties with Yunnan China Tobacco in the new tobacco sector.

According to an announcement last October, JiaJia Technology, a wholly owned subsidiary of Jinjia Co., and Huayu Technology, a wholly owned subsidiary of a Yunnan China Tobacco affiliate, signed a strategic cooperation agreement. The two parties jointly invested RMB 20 million in cash to establish a joint venture, Jiayu Technology. Jinjia contributed RMB 10.2 million for a 51% stake. The joint venture will expand into the new tobacco industry.

At the Shenzhen vape expo, Huayu Technology, from Yunnan China Tobacco, displayed a range of heat-not-burn devices and tobacco sticks. Huayu Technology is a subsidiary of Yunnan China Tobacco and, backed by that parent company, has extensive R&D experience in new tobacco products and fully independent development and manufacturing capabilities. It can be described as the “national team” of the e-cigarette industry.

Meanwhile, Shanghai Lvxin, backed separately by Shunhao Co. and Dongfeng Co., also appeared at the exhibition. In addition, Shenzhen Lvxinfeng and Shenzhen Jiapin Jianyi, in which Shunhao Co. holds stakes, also exhibited on site, showcasing a variety of products including e-cigarettes and heat-not-burn devices.
 
In the secondary market, e-cigarette concept stocks represented by Shunhao Co., McWell, Yingqu Technology, and IVPS have also performed well this year.

Boosted by both vaping and industrial hemp themes, as of April 15 this year, Shunhao Co. and Dongfeng Co. had posted cumulative gains of 402% and 85%, respectively.

As for the new tobacco industry, it is still in a stage of rapid growth. At present, quality is uneven, controversy remains significant, and policy discussions are still ongoing. But globally, the growth trend for heated tobacco remains strong.

More importantly, because the supply chain is already highly mature, data show that Shenzhen is the world’s largest production base for e-cigarettes, with more than 500 companies. Guohai Securities noted that in the future, heated tobacco products will face strict regulation while still receiving appropriate and reasonable marketing support, ultimately allowing them to capture a share of the cigarette market.