Electronic cigarette management will be further improved
Industry analysts believe that the specific regulatory details have not yet been issued, and electronic cigarettes may not necessarily move towards monopoly management in the future. Regulatory policies are not restrictions or bans on sales, but focus on guiding the electronic cigarette industry to develop in a standardized manner. The implementation of supervision will effectively raise the industry threshold, increase concentration, and benefit leading companies in the upstream and downstream industries.
The electronic cigarette industry may move towards monopoly management
On the 23rd, Aishide opened at the limit down. As of the close, the stock was 9.17 yuan, and the limit down board had 400,000 orders. According to Choice data statistics, 13 of the 18 electronic cigarette concept stocks listed on the A-share market closed down, including Yiwei Lithium Energy, which holds 32.44% of the issued share capital of Smoore International, the first Chinese electronic cigarette stock, which fell 15.85%.
The collective downturn in the electronic cigarette sector stems from a piece of news on the evening of the 22nd. The Ministry of Industry and Information Technology and the State Tobacco Monopoly Administration have studied and drafted the Decision on Amending the Regulations for the Implementation of the Tobacco Monopoly Law of the Peoples Republic of China (Draft for Comments). An additional provision was added to the draft opinion, namely, new tobacco products such as electronic cigarettes shall refer to the relevant provisions on cigarettes in these regulations for implementation.
According to the draft opinion, due to new situations and new problems in the field of electronic cigarette market supervision in recent years, in order to promote the legalization of electronic cigarette supervision, it should refer to the relevant provisions on cigarettes in the implementation regulations for implementation, mainly to regulate the production and operation of electronic cigarettes and solve the product quality and safety risks, false advertising and other problems of electronic cigarettes.
In October 2024, the State Administration for Market Regulation and the State Tobacco Monopoly Administration jointly issued the Announcement on Further Protecting Adults from Electronic Cigarettes, prohibiting the sale and advertising of electronic cigarettes online, and then electronic cigarettes were forced to move to offline channels.
The market believes that this draft for comments will tighten the supervision of electronic cigarettes again, and electronic cigarettes will move towards a monopoly management model, that is, the state will implement monopoly and unified management of the production, sales and import and export of atomized electronic cigarettes, and similar to the model of cigarettes, no tobacco monopoly license will be issued to those outside the China Tobacco system in the production and wholesale links.
It is not a restriction, but a guide to standardized development
However, in the view of many market institutions, the inclusion of e-cigarettes in the wild growth stage into the supervision is not a restriction or a ban on sales, but a guide to the standardized development of the e-cigarette industry, which will not affect the long-term development trend of the industry.
This amendment will first clarify the regulatory body of atomized e-cigarettes, and China Tobacco will supervise and inspect as a regulatory agency. Strengthening supervision is the main purpose, and the possibility of a complete ban on sales or complete monopoly is low. Wu Li, deputy director of Tianfeng Securities Research Institute, said.
Shi Kefan, chief analyst of the light industry manufacturing industry of Zheshang Securities, also believes that e-cigarettes have contributed a lot of employment and export earnings in my country, and most of the industrial technology is in the hands of Chinese companies. Therefore, the probability of China Tobacco blocking the development of e-cigarettes is very small, and a series of supporting measures may be introduced in the future to promote the healthy development of the industry.
In response to the hot topics raised by the draft for comments, the Beijing Tobacco Control Association recently responded that the chaos of e-cigarettes should be strengthened, but it is recommended not to include it in the tobacco monopoly supervision, but to be handed over to the health and health department, food and drug supervision department or market supervision bureau for supervision. Zhang Jianshu, president of the Beijing Tobacco Control Association, said that only heat-not-burn e-cigarettes are tobacco products, and other major types are not tobacco products.
At the same time, many people believe that if the e-cigarette regulatory policy is implemented, it may mean that atomized tobacco products (HNB) will be legal in the future.
Zhu Yue, an analyst at Everbright Securities, believes that the draft for comments has clearly regarded e-cigarettes as tobacco products, and NHB will be legal in China as a product closer to tobacco in the future. my countrys atomized tobacco products (HNB) are expected to be gradually launched to continuously meet consumers needs for harm reduction, improve consumer experience and cigarette structure.
Regulatory policies will increase industry concentration
CITIC Securities assumes that e-cigarettes strictly follow monopoly management. In this extreme case, the domestic operations of RELX Technology, an e-cigarette company that just landed on the US stock market in January this year, are expected to cease to exist. Smoore may only retain the atomization equipment production business in the mainland without contacting e-liquids. It is expected that Smoores adjusted net profit will be reduced by about 20%-25% to about 4.5 billion in 2021, and the performance CAGR in the next three years will be reduced from about 40% to about 30%.
On the contrary, in an optimistic scenario, assuming that the revision of the Tobacco Monopoly Law Implementation Regulations encounters obstacles, the country will adopt the registration and filing system + consumption tax method to regulate atomization e-cigarettes. In this case, the operating certainty of the leading company will be greatly improved, the leading position will be further consolidated, the revenue expectation will remain stable, and the valuation is expected to increase significantly. RELX Technologys valuation elasticity is greater than Smoore.
CITIC Securities believes that the release of this draft for comments has increased the possibility of policy moving towards monopoly management, which does not mean that it will definitely move towards monopoly management in the future, but in any case, the long-term value of the leader should be grasped.
It is worth mentioning that no regulatory details have been released in this draft for comments. Wu Li believes that the introduction of this regulation has clarified the regulatory subject and direction of atomized electronic cigarettes. The specific details need to be implemented in the future. The implementation of the regulation will effectively raise the industry threshold, increase the concentration, and benefit the leading companies in the upstream and downstream of the industry.
Huatai Securities believes that referring to the US market, if the revised content of my country is finally implemented, the development of my countrys electronic cigarette industry may slow down in the short term, and the performance growth of electronic cigarette production, brand, and retail enterprises will be under pressure in the short term. In the long term, the concentration of various links in the electronic cigarette industry will be further improved.