Why Has the E-Cigarette Industry Come Under Pressure Again?

01

Last Friday (June 18), the State Tobacco Monopoly Administration and the State Administration for Market Regulation issued a document on the supervision of the e-cigarette industry. We also reported it immediately at that time.

The name of the document is very long and the meaning is simple:Strictly investigate offline stores selling e-cigarettes to minors, and will start a three-month period of key rectification。As soon as the news came out, it immediately triggered a new round of shock in the e-cigarette industry. Then it is directly reflected on the stock price of e-cigarette companies. In early trading on Monday, e-cigarette OEM giant Simmore fell sharply at the opening, falling more than 10% during the session. Immediately afterwards, US-listed e-cigarette retail giant Fog Core Technology closed down more than 5%.

#p#Pagination Title #e#The supervision of e-cigarettes was issued only three months ago. What do you want to do this time?It's very simple. It has both realistic plans and long-term considerations.

From a realistic point of view, the new version of the Law on the Protection of Minors, which was officially implemented on June 1, clearly states that the sale of e-cigarettes to minors is prohibited and the main responsibilities and penalty measures are clarified. Article 59 clearly stipulates that schools, No tobacco, alcohol, and lottery sales outlets shall be set up around kindergartens.

Ironically, when searching for offline e-cigarette stores on map software, we found that many of them were open at the school gate.Even shops less than 100 meters in a straight-line distance from the middle school.

The e-cigarette happened to hit the muzzle this time.

In the long run, this is a further review of the sales channels and standardization of e-cigarettes.Just three months ago, the regulatory authorities just strengthened supervision of new tobacco products such as e-cigarettes. On March 22, the Ministry of Industry and Information Technology of China issued the "On Amendments (Implementation Regulations of the Tobacco Monopoly Law of the People's Republic of China) Decision ":

#p#Pagination Title #e#

Add an article to the Supplementary Provisions of the "Regulations for the Implementation of the Tobacco Monopoly Law of the People's Republic of China (Draft for Comments)" as Article 65:"New tobacco products such as e-cigarettes shall be implemented in accordance with the relevant provisions on cigarettes in these Regulations."This is the first time that e-cigarettes are to be formally included in special legal supervision, which can be said to be a final decision.

The impact of the blasting hammer last time had not completely dissipated, but this time it came again.What is the country's attitude towards the e-cigarette industry?Like a certain financial lending industry, let it completely disappear from the stage of history. Or is it just like the education and training and medical beauty industries?

02

Speaking of e-cigarette control policies, it is estimated that many people will first associate it with the classic dialogue about cigarettes in the British drama "Yes, Prime Minister":

#p#Pagination Title #e#Smoking contributes a lot of tax revenue and employment, which is beneficial to the country and the people, so we should crack down on e-cigarettes?In fact, this matter should be taken apart and viewed.

On the one hand, the tobacco industry does account for the majority of national tax revenue, and e-cigarettes affect cheese.。In terms of profit alone, China Tobacco Corporation ≈ PetroChina + Sinopec + Baidu + Alibaba + Tencent + ICBC + Bank of China + Agricultural Bank of China + CCB. In 2018, the tobacco industry paid 1.1556 billion yuan in taxes. What is this concept? In 2018, the total personal tax paid by people across the country was only 1.4 trillion yuan. And this is not just the case this year, but every year.

Whoever has more money will speak hard.

Therefore, at a time when the country's economy is in a transition period, there must be no problem with the huge tax payment paid by the tobacco industry. From this perspective, it is not an exaggeration to say that e-cigarettes have influenced the cheese of the tobacco industry. Therefore, there is nothing wrong with rectifying it.

But on the other hand, in fact, the State Administration of Tobacco conducts macro control over the cigarette industry as a whole.E-cigarette is a small trend, can not stop, it is better to embrace. The only thing electronic cigarettes and traditional cigarettes have in common is that they both contain nicotine. However, it does not contain tobacco and tar, nor does it bring harmful substances when burning cigarettes.

#p#Pagination Title #e#From the perspective of many countries and scholars in the world:Although e-cigarettes are not completely harmless, they are less harmful than traditional cigarettes. Therefore, many smokers who smoke but are worried about health problems will take the initiative to embrace e-cigarettes.

China has the largest group of smokers in the world, and naturally it will also produce the largest group of electronic smokers.And not only domestic needs, e-cigarettes are already a global industry.

At present, on a global scale, e-cigarettes are an area in which China has an absolute advantage.China's manufacturing clusters have long occupied the absolute advantage of the upstream e-cigarette industry, and Shenzhen is known as the global "fog valley." At present, e-cigarettes in European and American markets are inseparable from China's industrial chain: 90% of international trade in e-cigarettes is provided by China, and a total of 218 countries purchase e-cigarettes from China, with a total amount of 76.6 billion yuan.

Source: Beijing News "2020 E-Cigarette Industry Value Report"

At the same time, related industries have created more than 3 million jobs in China and made a significant contribution to foreign exchange earned through exports.It can be said that e-cigarettes are one of the few leading industries that China has made.On the surface, the State Administration of Tobacco is extending its hand further and further towards e-cigarettes.In fact, this is also equivalent to recognizing the legal status of the e-cigarette industry in disguise.If there is no supervision, the development of the e-cigarette industry will be like a bone in the throat. Now let's get straight to the point and make it clear. This is a norm for the e-cigarette industry. The arm cannot twist the thigh, but the arm can be attached to the thigh and coexist with the thigh.# p#pagination title #e#As for competing for profits with China tobacco, this is actually very simple. Just increase the tax rate.The country doesn't care what cigarettes you smoke, only cares about how much tax you pay.?

03

Since the country does not want to suppress this industry, it just wants to strengthen supervision and make it more standardized and standardized. Then the concentration of the entire industry will inevitably increase, and the prospects of leading companies will be broader. Since 2016, the United States has increased its supervision of e-cigarettes, and the CR4 (top four) market share has reached 90%.Strong supervision has shown a significant Matthew effect, and the strong will always be strong.

The undisputed leaders of China's e-cigarette industry are nothing more than Simore International and Yueshi (Fog Core Technology). Simmore International is the global leader in atomization OEM, and Fog Core Technology is the leader in domestic atomization brands.Here is an analysis of the strengths and weaknesses of the two companies to see who is the real leader.

In the e-cigarette industry, the two play the roles of foundries and brand owners respectively. Under normal circumstances, in the relationship between the two, the brand owner is stronger. The best examples are Apple and Foxconn. However, in the cooperation between Simmore International and Fog Core Technology, the opposite situation occurred.

In 2019, Simor International's top five customers accounted for 63.0% of its total revenue. They are Japan Tobacco, British American Tobacco, Reynolds Tobacco, Yuke and NJOY. RELX is Simmore's fastest-growing customer, but not the largest customer. In 2019, RELX accounted for about 12%, and in 2020, revenue accounted for about 20%.# p#pagination title #e#

But in turn, Yueshi's situation is very different. In 2019 and 2020, the proportion of Yuexie's purchases from Simmore International accounted for 72% and 79% of the total purchase amount respectively. Relevant accounts payable accounted for 69% and 83% of total accounts payable respectively.

Judging from financial data, Yuexi is not strong in the industrial chain. In terms of technical barriers, Yueshi is even more vulnerable. Almost all of the core material in the replaceable e-cigarettes produced by Yue Ke, the atomizing core comes from Simmore. The performance of the atomizer has a great impact on the quality of e-cigarettes, and the technical barriers are high. At present, with FEELM atomization technology, Simoer International has formed a nearly "monopoly" position in the atomizer industry chain.Whether in terms of financial data or technical barriers, Yueshi has no advantage over Simmore. It can even be said that Simmore can be without Yueyi, but Yueyi cannot be without Simmore.If the two companies have to choose one, I think Simmore International is the real leader in the e-cigarette industry.

Performance is the best proof of this.Income is doubling every year. Although it was affected by the epidemic last year, it still increased by 30%, and the growth rate is still quite high. Gross profit margin has been rising all the way, reaching 52.9% last year, fully reflecting the advantages of pricing power caused by technological advantages. Net profit has doubled n times every year in the past few years, increasing by 72% to 3.89 billion yuan last year. The only sword of Damocles hanging over Thmore's head is policy.

However, judging from Simmore's market share, the domestic market currently only accounts for 27%. Therefore, even if China completely eliminates the e-cigarette industry, its impact on Simmore will be limited.Of course, how could China be willing to put out such a good export-earning currency printing machine? It was too late to take care of it carefully.