Seven Months After China’s New National Standard: Many Vape Brands Disappear and Leading Manufacture

"It's basically cool now." mentionede-cigarette industryCurrent situation, engaged ine-cigarettesSales Cheng (pseudonym) told a reporter from China Times: "Many of my colleagues have changed careers, and their income is not as good as before."

aBrand electronic cigarettesInternal staff told reporters: "Wages have shrunk by 60%, the benefits for the Chinese New Year and holidays are gone, there is no overtime pay for overtime work, and the benefits have plummeted."

"There is no fruit flavor, and a number of customers have been lost. Some are determined to quit smoking, and some switch to cigarettes. Sometimes I can't open an order for an afternoon here. I used to be too busy, but now I'm free." A clerk at an e-cigarette collection store in Shenzhen also complained to reporters.

Since its birth, e-cigarettes have swept the market with a rapid growth trend, with 2020 Simmore International (06969.HK) and 2021fog core technology(RLX.US) has reached its peak after being listed one after another. Domestic 2022e-cigarette marketAfter several rounds of agitation, the market began to enter a "cooling-off period" with the implementation of new national standards, the ban on fruit flavor sales, the suspension of express delivery, and the collection of consumption taxes.

Today, seven months have passed since the implementation of the new national standard for e-cigarettes. On this occasion, a reporter from China Times visited offline and found that a large number of e-cigarette stores have closed, the industry has experienced a major reshuffle, and many brands have disappeared. The performance of the leading factory has been halved, and the revenue and net profit of Simore International and Fog Core Technology both fell.

The performance of the leading factory is cut

Simmore International's 2022 annual financial report shows that the company achieved revenue of 12.145 billion yuan in 2022, a year-on-year decrease of 11.7%. During the period, the company's adjusted net profit was 2.575 billion yuan, a year-on-year decrease of 52.7%. In the first quarter of this year, Simmore's performance has not improved significantly. Its pre-tax profit for the first quarter of 2023 was 319 million yuan, down 49.3% from 629 million yuan in the same period last year; its profit for the period was 293 million yuan, down 49.3% from 527 million yuan in the same period last year.

Simmore said in its performance report that revenue from the the mainland of China market in the first quarter of 2023 was approximately 15.5 million yuan, a year-on-year decrease of approximately 97.7%. Mainly due to the impact of the external environment, the demand for electronic atomization products in the the mainland of China market has dropped significantly.

The performance of Fog Core Technology, known as the "No. 1 share of e-cigarettes", has also dropped sharply. In 2022, the company's net revenue was 5.33 billion yuan, a year-on-year decrease of 37.4%; under non-GAAP, the adjusted net profit was 1.57 billion yuan, a year-on-year decrease of 30.1%. Judging from the fourth-quarter results alone, Fogxin Technology achieved net revenue of 340 million yuan, a year-on-year decrease of 82.1%, lower than market expectations; under non-GAAP, adjusted net profit was 250 million yuan, a year-on-year decrease of 53.5%.# p#pagination title #e#

E-cigarettes have experienced a period of disorderly expansion. Blind-eyed running has made the industry famous for its "huge profits". Looking through the 2021 performance reports of Simore and Fog Core Technology, we can find that their gross profit margins have reached 53.6% and 43.1% respectively, which has far exceeded most companies in the electronics manufacturing industry.

On October 25 last year, relevant departments issued the "Announcement of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation on Levying Consumption Tax on E-Cigarettes", which included e-cigarettes in the scope of consumption tax collection, added e-cigarette sub-items under the cigarette tax items, and implemented ad valorem tax payment for e-cigarettes. The tax rate is calculated by the fixed rate method. The production (import) link tax rate is 36%, and the wholesale link tax rate is 11%. Previously, e-cigarettes were only subject to a value-added tax of 13% as ordinary consumer goods.

After the tax increase, manye-cigarette brandsThere has been a wave of price increases. According to incomplete statistics, last November,yueshi、Yooz grapefruit、magic Flute、snowplusWhen the retail price of brands is increased,the cartridgeThe price increase ranges from 20% to 50%. However, this move failed to save the gross profit margin, which dropped from 53.6% in 2021 to 43.3% in 2022.

Is new consumption blocked?

The tail brands withdrew. In addition to stabilizing their market position, the head brands also began to look for the second curve. It is observed that at present, various e-cigarette companies mainly show their tentacles in three directions, namely, going to sea, new consumption and the big health market.

Last year, e-cigarette companies took a series of actions in terms of new consumption, such as Yue Shi's launch of its own coffee brand "Awakening ON";Moti Magic FluteLaunched "Japanese Coffee and Night Wine" and opened the first joint store integrating three categories of "coffee, craft beer, and e-cigarettes";YOOZPomelo is selling betelnut flavored chewing gum to "power the home".

One year later, our reporter found that the "Li Dangjia" betel-flavored chewing gum, which had previously had flagship stores in Taobao and Jingdong, had been removed from shelves, and the keyword "Li Dangjia" could not be found even if searching for it. The reporter contacted YOOZ Youzi on the grounds of consulting an agent. The other party said that "Power Home" was still on sale, but did not respond positively to why it was removed from Taobao and Jingdong platforms.

inMOTIIn the Magic Flute Joint Store, the reporter found that compared with the full shelves he saw in the store last year, the space for placing bagged coffee beans is now vacant. The store has also been removed from the Meituan Takeout and Hunemo platform.

The reporter ordered a regular latte drink in the store, but was told by the clerk that it could not be produced. "There is a shortage of raw materials, and drinks with dairy products cannot be released. Currently, the purchase of coffee beans and beer has been suspended. As for the next step, whether to close the store or continue depends on the arrangements of the superiors. There is no accurate notice now." The shop assistant told the reporter.# p#pagination title #e#

The future of new consumption is uncertain, but what about overseas markets?

Shenzhen is a major town for the production and export of e-cigarettes. From Shenzhen's export data, we can roughly see the overall market situation. According to customs statistics, in 2022, Shenzhen exported 46.09 billion yuan of e-cigarettes, accounting for 68.3% of the country's total export value. In the first two months of this year, Shenzhen exported 7.1 billion yuan of e-cigarettes, a year-on-year increase of 38.9%. During the same period, exports to the EU, the UK and Russia increased by 1.9 times, 90% and 2.7 times respectively, and exports to ASEAN increased by 1.3 times.

Simmore's performance report shows that revenue from overseas markets in the first quarter of 2023 was approximately 2.512 billion yuan, a year-on-year increase of approximately 58.2%. In 2021, Yueshi will establish "Yueshi International" to focus on overseas business, with deployments in more than 40 countries around the world. In March this year, Yueshi International launched a new disposable e-cigarette product in the UK to accelerate its capture of the British market.

In this regard, MOTI Magic Flute also said in an interview with a reporter from China Times that the current overseas development speed is relatively fast compared with the domestic market. The global e-cigarette industry maintains an annual growth rate of 20% to 30%, and this year is no exception. At present, various countries and regions around the world have different regulatory policies for e-cigarettes, and have different compliance requirements for products. MOTI Magic Flute is also working hard to learn the relevant policies and regulations of various countries and regions and lay out compliant local operations.

Bet on medical atomization

E-cigarette companies have relatively advanced electronicsatomization technology, this technology is applied in addition toe-cigarette productsChina has also played a huge role in the medical field. It is worth noting that Simor's 2022 performance report shows that during the period, R & D expenses were invested 1.372 billion yuan, a year-on-year increase of 104.6%, of which 12% were used for nebulized medical and nebulized beauty products, and nearly 14% were used for special purpose nebulizing products and related technologies.

According to reports, Simmore established seven new research institutes last year, focusing on research in the fields of new materials, medical research, atomization health, and atomization beauty. During the period, the research and development of a domestic ventilator combined nebulizing drug delivery device was independently completed, and a production license was successfully obtained. At the same time, the development of two drug delivery devices for asthma and chronic obstructive pulmonary disease ("COPD") has been completed, and the development of related drug preparations has been initiated. In the future, the Group will strive to provide inhaled drug delivery products mainly for respiratory diseases.

In an interview with a reporter from China Times, Fog Core Technology said that atomization is a delivery technology widely used in the pharmaceutical field. Yueshi will use its leading atomization technology to develop new methods to improve the experience and absorption efficiency. In March this year, Yueshe signed a cooperation agreement with the Shenzhen Bay Laboratory Pingshan Biomedical R & D and Transformation Center to jointly build a joint R & D center for complex biomolecule inhalation preparations and build a platform for screening, R & D and transformation of new drugs. In the future, Yuexie and Pingshan Center will join hands to explore and develop new polypeptide drugs based on electronic atomization technology, and carry out drug preparation, aerosol stability assessment, experimental animal effects and toxicology evaluation.

Embracing compliance, the industry enters orderly development

During the visit of a reporter from China Times, an unnamed industry insider said frankly: "A painful period is inevitable. They are all shouting 'cool'. In fact, they are just under supervision to bid farewell to barbaric growth and return to a healthy and orderly business format."# p#pagination title #e#

Fu Xuejun, a registered international investment analyst, has long been concerned about the development of the e-cigarette industry. He pointed out to a reporter from China Times: "After the implementation of the new regulations, brand competition has intensified. The research and development and production of e-cigarette products under supervision have paid more attention to quality and safety, and sales and operations have also been legalized in compliance. I am cautiously optimistic about the future market structure and development. As the market and consumption environment become more mature, the potential and motivation for industry development are still worth looking forward to."

MOTI Magic Flute said that over the past year, MOTI Magic Flute has actively responded to compliance operations, assisting and guiding brand stores to carry out compliance transformation of non-exclusive operations as soon as possible, and cooperating with terminal stores that hold e-cigarette retail licenses. Carry out product sales cooperation and provide full operational support.

"The current e-cigarette market has gradually shifted from the use of flavors and fragrances to the use of tobacco extracts. The aroma brought by tobacco extracts is also complex and 'interest'. The national standard e-cigarette market highlights the aroma of various cigarettes, which is also the reason for differentiation and space." MOTI Magic Flute pointed out.

The Huachuang Securities Research Report analyzed that after the implementation of the new national standard, the old national standard products have been officially included in the scope of ban on sales, but the initial supervision in various places is still in the stage of adjustment and exploration. At the same time, consumer demand for fruity products continues. In the past, some disposable e-cigarette manufacturers that were mainly export-oriented in the past have illegally switched to domestic sales. Some non-compliant "milk tea cups" and "fruit cups" have hit the market, jointly suppressing sales of new national standard products. Nowadays, law enforcement is becoming stricter to purify the market, and the suppression factors of national standard sales are loosened. As the rectification work continues to advance, the inventory of related products is expected to be further compressed, gradually freeing up space for the sales of national standard products.