Leading e-cigarette companies reported declines in both revenue and profit in H1 as the industry rac
Since 2023, the electronic cigarette industry under the strong regulatory system, the market is silent. Row to the middle of the year, with the two electronic cigarettes head of the enterprise disclosure of the half-yearly report, the outside world can be more intuitive to see the survival of the entire industry status quo. According to the second-quarter 2023 financial report disclosed by e-cigarette brand YueQue parent company MistyCore, the company's revenue in the second quarter of 2023 was $4.5 billion, according to the report. According to the report, Misty Core's revenue for the second quarter was RMB 380 million, a year-on-year decrease of 83.1%, while non-GAAP adjusted net profit was RMB 86.2 million, a year-on-year decrease of about 86.4%.
In addition, international e-cigarette OEM leader Smallsmoke International did not have a good time either. on August 21, Smallsmoke Int. announced on the Hong Kong Stock Exchange that in the first half of the year, the Group's total revenue amounted to 5.123 billion yuan, a year-on-year decline of 9.4%. The Group's gross profit margin declined from 47.9% in the same period of the previous year to 36.2% in the period under review. The Group's total comprehensive consolidated revenue for the period decreased to $734 million for the period under review from $1,384 million for the corresponding period of the previous year. Adjusted net profit for the period under review amounted to $758 million, a decrease of 47.2% from the corresponding period of the previous year.
A research report by Anxin Securities pointed out that the domestic e-cigarette market has bottomed out, and with the domestic e-cigarette management measures officially landed on October 1 last year, followed by the landing of the e-cigarette excise tax, which has greatly impacted the size of the e-cigarette market. The development of domestic business depends on the policy and enforcement efforts, need to continue to track and observe.
Domestic e-cigarettes and black production "race", fruit flavored e-cigarettes hidden sales
August 18, fog core technology announced unaudited financial results for the second quarter of 2023. According to the financial results, Misty Core's net income for the second quarter of 2023 was CNY378.1 million (US$52.1 million), compared with CNY2,233.9 million in the same period last year.
Misty Core Technology said the decline was primarily due to the discontinuation of older products after the regulator's special action ended in April, as well as the negative impact of illegal products in the marketplace, which disrupted user adoption of our new, national standard-compliant products. In other words, despite the fact that the once fruit-flavored e-cigarettes have been banned by the new state regulations, they continue to be sold underground in various hidden forms. This greatly disrupts the market and affects user adoption of new manufactured products that comply with national standards.
The spurt of e-cigarettes a few years ago was significantly linked to their fruit flavors, which is an important reason why many consumers, especially young users, favor e-cigarettes over traditional tobacco. Data show that other types of products such as fruit flavors used to occupy about 90% of the market share. However, the disadvantages of fruit-flavored e-cigarettes are also very obvious: the fruit flavors of e-cigarettes make it easy to ignore the hazards, and many users have become dependent on e-cigarettes unknowingly precisely in the process.
Therefore, on March 11 last year, the State Tobacco Monopoly Administration (STAA) announced the Measures for the Administration of Electronic Cigarettes, which stipulates that the sale of flavored e-cigarettes and e-cigarettes that can be added to atomizers on their own is prohibited in addition to tobacco flavors; and on April 12, the State Administration of Market Supervision and Regulation (SAMSAR) and the National Association of Standardization Administration (NASA) approved the release of the mandatory national standards for e-cigarettes. The mandatory national standard for e-cigarettes stipulates that e-cigarettes should not be induced to minors, and should not make the characteristic flavor of the product other than tobacco; at the same time, atomizers should contain nicotine, and should use nicotine extracted from tobacco, with a purity of not less than 99%.
Both new regulations came into effect on Oct. 1 last year, and since then, fruit-flavored e-cigarettes have become history in the mainland e-cigarette market.
But for e-cigarette makers, mandating that flavors be made tobacco-flavored and that nicotine be added will mean the loss of a large number of users on the one hand, and on the other hand, it will mean a series of technological research and development and line adjustments in order to make their products comply with the new standards, which will mean a large amount of additional spending without a significant increase in users.
Misty's product development costs soared to 130 million yuan from 17.8 million yuan in the same period a year earlier, a seven-fold increase, according to the company's fourth-quarter results.
Black business is on the rise, and the industry's compliant development is overshadowed
Strengthened regulation and the proliferation of underground black businesses in e-cigarettes are also important challenges facing Yuekue. Since the implementation of the new regulations on e-cigarettes, driven by high profits, some illegal e-cigarette manufacturers are still quietly producing illegal e-cigarettes such as fruit flavors and relying on online social platforms to sell them in the dark.
Since this year, a large number of e-cigarettes labeled as "milk tea cups" and "cola cans" have been seized in various places, in a variety of fruit flavors. Even if the crackdown is strong, but under the huge profits, many illegal elements will still use social media to sell illegal e-cigarettes through express delivery logistics. #p#Page title #e#
Blackmail raised its head. From the end of February to the middle and end of March this year, the State Tobacco Monopoly Administration (STAA) formed four inspection teams to carry out on-site inspections in 27 municipalities in 16 provinces against six transitional periods, 17 regularized key regulatory tasks and 62 inspections.
According to officially disclosed data, as of May this year, the country investigated and handled 1,848 cases of various types of administrative penalties for e-cigarettes, investigated and dealt with 398 criminal cases involving e-cigarettes in conjunction with the public security departments, and seized cigarette cartridges 2,940,000, e-cigarettes 730,000, disposable e-cigarettes 3.57 million, 9.8 tons of nicotine and atomizers, more than 10 tons of accessories, smashed 25 counterfeiting dens, 36 warehouses of finished products, the amount of money involved in the case of about 2.1 billion yuan, arrested 1323 people.
Despite increasing regulatory crackdowns, blackmail still disrupts the market. The recent resurgence of illegal products has affected the pace of the industry's recovery, but we believe that these disruptions are only temporary, and that national standard products will gradually replace poor-quality illegal products and win the trust of users," said Wang Ying, founder of Fogcore Technology. "
Lu Chao, CFO of Misty Core Technology, also said, "In the face of external challenges, especially the disruptions of illegal products, we remained focused on improving operational efficiency and profitability in the second quarter."
On top of the black production, the domestic e-cigarette industry is also under pressure for profitability with reference to the 36 percent excise tax levied on cigarettes. According to the financial report of Misty Core Technology, the gross profit margin was 26.1% in the second quarter of 2023, compared with 43.8% in the same period last year, which means the gross profit margin declined by more than 40% compared with the same period last year.
The main reason for the decline in gross margins was the imposition of a 36% excise tax, which came into effect on November 1, 2022, according to Fogcore. Within its results report, Smogcore similarly explained that the excise tax, which will be payable by e-cigarette brand holders and wholesalers in the mainland China market from Nov. 1, 2022, has also had an impact on demand, which in turn has affected short-term sales of the product.
Despite the heavy pressure, practitioners remain optimistic. Wang Xin, executive director of Simcor, pointed out at the results meeting that despite the short-term shrinkage of the Chinese market, the future development of the Chinese market remains optimistic because: China has the largest base of smokers in the world, and new tobacco to replace the traditional tobacco trend of good development abroad; domestic policy and regulation will promote the legalization of the tobacco industry, standardized development, and support Chinese enterprises. The domestic policy regulation will promote the legalization and standardization of the tobacco industry, support the expanding influence of Chinese enterprises overseas, and enhance the competitiveness of national standard products; the group's technological enhancement will improve consumer recognition.
Anxin Securities also pointed out that the development potential of electronic cigarettes is still very large, the industry has passed the barbaric growth period, and gradually entered the stage of orderly development. The core customer advantage and technological advantage of Simoer is still strong, the return of performance needs to be associated with the attitude of the regulation is still large, the upside potential is far greater than the downside risk.
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