Vaping enters peak season as some manufacturers see orders rise 20% month-on-month

Before the Lunar New Year, affected by tobacco control regulations in Europe and the United States, domestic vaping manufacturers saw fourth-quarter orders drop by 30% to 50% month-on-month. After the New Year, however, major listed companies began entering the vaping sector one after another, making vaping a new investment hot spot. Analysts said that explosive post-holiday growth in orders at some vaping manufacturers, along with positive future expectations, has attracted investor attention.

He Longsheng, president of the electronic cigarette chamber of commerce, said that the first quarter is traditionally the peak sales season for vaping products, with some manufacturers seeing order growth of as much as 20% month-on-month.

Recently, private equity has also shown interest in the vaping industry, seeking to acquire 51% stakes in five companies each valued at over RMB 100 million.

It is understood that 95% of e-cigarettes in the United States are imported, while 90% of China’s e-cigarettes are exported. Europe and the United States are the main markets for e-cigarette sales. After Spain issued a ban on e-cigarettes in mid-December, along with other factors such as the New York City Council passing a similar tobacco-control bill, market orders for e-cigarettes fell back noticeably.

Analysts said that e-cigarette control policies introduced in certain European and American countries and regions pushed the industry into a cyclical downturn. Some smaller companies may struggle to survive the difficult period, causing orders to concentrate in the hands of a few stronger manufacturers. Industry leaders are therefore more likely to be the ultimate beneficiaries.

After this difficult period, the vaping industry ushered in its first sales peak of the new year. Research by DZH News Service into vaping factories found that during the first quarter, vaping manufacturers were generally quite busy.

“The goods ordered before the New Year had all been sold out, and after the holiday everyone urgently needed new stock to sell, so they all placed orders. That’s why orders increase. It’s the same every year,” He Longsheng explained.

“But this is not a universal phenomenon,” one industry manufacturer admitted.

“After the New Year, although we’ve been quite busy, the company’s sales orders showed 0% month-on-month growth,” one manufacturer said.

It is reported that some manufacturers in the market have scaled down factory investment and even resold production equipment. “For vaping factories without competitiveness or innovative products, it is normal for sales to decline rather than rise. Many factories in the market have reduced their scale,” the source said.

He Longsheng said that although some manufacturers saw month-on-month order growth of 20%, many factories also saw orders decline again by the end of the month. Whether vaping sales will remain strong or turn weak later on is still unknown, and it may not become clear until after April.

Regarding listed companies involved in vaping production, Chen Jiemin, director of the securities investment department of Shanghai Greennew (002565.SZ), said that related products from Shanghai Lexin have already entered production and achieved sales both domestically and overseas. However, the company’s production capacity remains unclear.

At present, A-share listed companies involved in vaping include:

On March 13, 2014, MYS Group (002303.SZ) announced that its wholly owned subsidiary, Dongguan MYS Environmental Technology Co., Ltd., had successfully passed the factory inspection, sample testing, and comprehensive evaluation procedures of e-cigarette manufacturer Huizhou Jirui Technology Co., Ltd., obtaining qualification as a packaging supplier and providing integrated packaging services for its e-cigarette products.

EVE Energy (300014.SZ) is a leading domestic supplier of batteries for e-cigarettes, with products mainly exported to Europe, the United States, and other regions. On March 3, 2014, it announced that it would acquire a 50.1% stake in McWell for RMB 439 million in cash, formally entering the e-cigarette manufacturing sector.

On February 24, 2014, Jinjia Group (002191.SZ) announced that it would jointly invest RMB 100 million with Shenzhen Hemuall Technology Co., Ltd., a leading domestic e-cigarette company, to establish a joint venture in the e-cigarette business.

In September 2013, Dongfeng Co. (601515.SH) and Shanghai Greennew jointly invested to establish an e-cigarette company in the Shanghai Free Trade Zone.