Behind the fall in Smoore’s share price: China’s heat not burn is expected to accelerate
The e-cigarette sector experienced a significant correction, with Smoore (6969.HK) having a 17.1% fall, and Huabao (0336.HK) 7.7%. We believe that, first, BYD Electronics stated during its investigation that its fully automatic ceramic production line for electronic cigarettes has passed the commissioning, and it is expected that the products will be mass-produced and launched in the next few months. The second is because today’s Health Commission issued the “China Smoking Harmful Health Report 2020”, which stated that “there is sufficient evidence that e-cigarettes are unsafe.”
Picture: A corner of Uwoo® heat-not-burn shop
Our core views are as follows:
1. Competitive landscape: Smoore has a clear technological lead. Today’s sharp drop is mainly due to market concerns about the deterioration of the competitive landscape in the future.
We believe that Smoore’s FEELM patented ceramic core technology is significantly ahead of the industry average after a long period of customer orders from all over the world and consumers’ quality verification, and it has achieved double binding with major overseas customers through the FDA PMTA channel. At present, major Chinese customers still use the company’s exclusive patented ceramic atomizing core to achieve a stable and uniform suction taste and experience. New entrants still need more basic research investment, customer sample testing, large-scale industrial mass production verification and other multi-step and multi-dimensional preparations, which will take a long time. We expect Smoore’s future performance will continue to maintain high growth.
2. The report of the Health Commission is mainly from the perspective of tobacco control, not for e-cigarettes! !! New types of tobacco such as e-cigarettes are harm reduction products, not harmless products.
The original intention of e-cigarettes, HNB and other products is to provide nicotine addicts with less harmful use. According to the official caliber of the U.S. FDA, IQOS has obtained the MRTP certification in July 2020, which means “a large reduction in harmful or potentially harmful The production of chemical substances”; at the same time, the Department of Public Health of the United Kingdom publicly stated in 2020 that “e-cigarettes have the effect of reducing harm” and other views.
3. Heat-not-burn is the general trend! After the implementation of supervision, the optimization of the competitive landscape will be accelerated.
In 2020, the global penetration rate of new tobacco is only 4.8%, which is still in a relatively early stage and low penetration rate. Philip Morris International, the world’s largest tobacco company, predicts that HNB and other new tobacco revenues will account for 50% in 2025! !! We believe that when the new tobacco regulation is gradually implemented, it will effectively push up the industry threshold and increase concentration, which will benefit the industry’s leading upstream and downstream enterprises.
4. The main track of China Tobacco is HNB (heat not burn)! Driven by both national supervision and harm reduction needs, the launch of China’s HNB is expected to accelerate! Focus on recommending core suppliers of China Tobacco: HUABAO International/Stocks (China’s tobacco flavor leader, the only private license for new flakes), Jinjia Stock (China Tobacco Brand Leader, strategic cooperation with Yunnan China Tobacco)!