2014 Daily Report on E-Cigarette Packaging: China’s Vaping Industry Breaks Through, Launch Day Appro

Event
Shanghai Green New / Dongfeng Co., Ltd. announced: Its subsidiary Shanghai Green Xin signed a four-party technical cooperation agreement with Jilin Tobacco, Yanji Changbai Mountain Technology Company, and Zhengzhou Tobacco Research Institute of China National Tobacco Corporation on April 15, 2014. Cooperation content: 1) Based on low-temperature aerosol smoking technology, jointly research and develop Changbai Mountain cigarette companions; 2) Conduct safety testing and evaluation of Changbai Mountain cigarette companions; 3) Establish safety standards and hygiene standards for Changbai Mountain cigarette companions. In the future, Jilin Tobacco's wholly-owned subsidiary Yanji Changbai Mountain will order Changbai Mountain cigarette companion products produced based on the research results of this agreement from Green Xin, and use them for promoting "Changbai Mountain" cigarettes, with specific bulk procurement terms agreed upon by Yanji Changbai Mountain Cultural Media and Green Xin.
Comment
Significant meaning, the domestic e-cigarette market begins to break through: Although the Tobacco Control Bureau has officially set the tone for e-cigarettes, treating new tobacco products such as e-cigarettes as a strategic, overall, and long-term major issue related to the sustainable development of the industry, and has established a leadership group, designating eight state-owned tobacco companies as the main force, there has been no substantial action domestically. Therefore, the market still treats e-cigarettes as a concept hype, which is also the reason for the large adjustment in the sector during the market style transition. This cooperation between Green Xin, Jilin Tobacco, Yanji Changbai Mountain Technology Company, and Zhengzhou Tobacco Research Institute of China National Tobacco Corporation is very significant for Jilin China Tobacco to research e-cigarette products, indicating that domestic e-cigarette policies are beginning to take shape, and the market has started to break through, with China Tobacco officially entering the e-cigarette market.
More local China Tobacco may follow: Compared with traditional tobacco, the flavor differences of e-cigarette products are not so obvious, so there is a first-mover advantage. Due to the competitive relationship among various local China Tobacco companies, we believe that Jilin China Tobacco's actions will stimulate other local China Tobacco companies, and the catfish effect will lead to more China Tobacco companies following suit, from point to area, the launch of the domestic e-cigarette market is not far off.
Introduction: It is reported that e-cigarettes will be the development trend of the domestic tobacco industry: We believe that the domestic tobacco market will follow the major trend of international tobacco development, and e-cigarettes will become a solution for the tobacco industry.
According to the heated non-combustion information network: E-cigarettes will be the development trend of the domestic tobacco industry: We believe that the domestic tobacco market will follow the major trend of international tobacco development, and e-cigarettes will become a solution for the tobacco industry. We believe there is no need to worry too much about consumer acceptance issues: 1. The historical precedent of smoking has proven that there is a market for domestic e-cigarettes; 2. Currently, most e-cigarettes seen domestically are for export, imitating European and American flavors, while Europe and America are mixed tobacco systems, and domestically it is mainly flue-cured tobacco. If the domestic market is confirmed to start, the research and development of pod flavors will keep pace; furthermore, in the future, China Tobacco may lead the research and development of pod flavors, relying on the technical team of China Tobacco to solve flavor issues is not difficult; 3. The domestic base of smokers is large, and people are highly receptive to new things.
The potential capacity of the domestic e-cigarette market is nearly 100 billion, and tobacco packaging will become the biggest beneficiary: China has 300 million smokers, with traditional cigarette sales reaching nearly 1.2 trillion, contributing about 850 billion in profits. The tobacco industry cake is huge; even if e-cigarettes occupy 5% of the market share in the future, it will reach about 60 billion in sales, while the current domestic market is basically zero, indicating a very large growth space. Moreover, with the launch of domestic e-cigarettes, the beneficiaries will be very concentrated, with Jinjia / Green New / Dongfeng likely to obtain most of the OEM share. The tobacco industry is a monopoly, and China Tobacco will dominate the domestic e-cigarette market. For domestic e-cigarette participants, the relationship and historical cooperation with tobacco companies are crucial; whoever can secure the most cooperation with China Tobacco will become the biggest beneficiary. Tobacco packaging companies (Jinjia, Green New, Dongfeng) have a stable cooperative history with tobacco companies in traditional business, maintaining good relationships, and may become the biggest beneficiaries of the launch of the domestic e-cigarette market. We believe that domestic e-cigarettes will be a high-threshold, high-reward good business (referencing the profit level of cigarette packaging).
The investment logic of e-cigarettes has not been disrupted, and we remain optimistic: Recently, whether traditional tobacco or e-cigarettes have been facing some negative news, such as smoking bans in public places in Shenzhen and Beijing; tightening e-cigarette policies in Europe and America, with many countries and cities beginning to ban vaping in public; quality issues with e-cigarette products; and the recent possibility that the World Health Organization may classify e-cigarettes as tobacco products. We believe these do not constitute a major impact on the investment logic of e-cigarettes. The reasons for the e-cigarette explosion: 1. Healthier and more environmentally friendly; 2. Price advantage; 3. Improved product experience, achieving a high degree of simulation with traditional tobacco; 4. Novel, cool, and fashionable, with the first two being core. Currently, both the explosive growth of the e-cigarette market capacity and the rapid expansion of the e-cigarette smoker base prove that e-cigarettes have very strong vitality. Even if the World Health Organization's recommendations are accepted by various countries and classified as tobacco products, leading to taxation issues, according to Western tobacco taxation principles, products that cause less harm to the body have lower tax rates. For example, traditional cigarette tax rates in the U.S. are 40%-50%, while new tobacco products like snuff, oral tobacco, and low-temperature combustion have tax rates of 15%-20%. Considering that e-cigarettes are likely to be less harmful than low-temperature combustion products, their tax rate will probably be below 15%. Even in the worst-case scenario, if the tax rate reaches 20%, the price advantage of e-cigarettes remains very significant. Therefore, regarding recent policy disturbances, we believe it does not change the overall direction. #p# Page Title #e#