Jingjia Reports Decrease in Revenue but Promising Future

On August 29th, Jinjia Group (002191) released its investor relations activity report. According to the report, the company's total revenue reached 2.033 billion yuan, a decrease of 23.09% compared to the same period last year. Among them, revenue from e-cigarette packaging reached 0.58 billion yuan. Furthermore, thanks to the full deployment of the Galaxylink production line and the consolidation of Hengtian Commercial, the revenue of the new tobacco sector increased by 81.77% year-on-year, maintaining its rapid growth momentum.

Below are the main Q&A (related to the new tobacco): 

- What is the new tobacco product? 

- How does it differ from traditional tobacco? 

- Are there any health risks associated with the new tobacco? 

- How is it regulated by the authorities? 

- What are the potential benefits and drawbacks of this new product? 

- Are there any restrictions on the marketing and sale of the new tobacco? 

- How has the public reacted to the introduction of this new tobacco? 

- What research has been conducted on the effects of the new tobacco? 

- Are there any efforts to discourage the use of this new product? 

- What role does the tobacco industry play in the production and promotion of the new tobacco?

Question: What new changes do you foresee in the bulk packaging industry in the future, and how is the company planning to address them?

Answer: The trends in the packaging industry are closely related to the fluctuations in consumer goods. Among the various products, the demand for wine packaging is positively correlated with the level of consumer recovery. The company is firmly implementing a strategy of collaborating with major brands and maintaining stable cooperative relationships with large customers. It provides packaging design and brand promotion services to clients such as Maotai, Wuliangye (000858), Xijiu, Tuopai, Shede, Jinliufu, and Hougongfang. Additionally, the company will actively expand its business in packaging for other types of alcohol besides liquor, aiming to secure more high-quality orders from alcohol brands with its unique product design concepts, exquisite technical craftsmanship, and rich production operation experience. In the field of consumer electronics packaging, the company continues to vigorously expand its e-cigarette packaging business by offering high-quality and innovative packaging solutions to meet the demands of clients. Currently, it serves well-known brands such as Yooke, IMiracle (Heaven Gifts), British American Tobacco, Imperial Tobacco, and PMI Tobacco.

Question: How does the company consider the planning and layout of the new tobacco sector, and what is its outlook on future development trends?

Answer: According to the 2022 World Tobacco Report, the sales of e-cigarettes reached $23.65 billion, with a year-on-year growth of 20.0%. It is expected that this growth trend will continue in the future. The company's new tobacco business is centered around contract manufacturing, with e-liquid and supply chain services as its two wings. In the domestic market, the company will leverage its understanding of tobacco flavors and fragrance blending technology in the new tobacco business to provide customers with competitive "new national standard" e-liquid products and support their growth alongside domestic clients and markets. Due to relevant policies and cost considerations, the company's new tobacco layout is mainly focused overseas. Shenzhen Galaxylink provides ODM/OEM and supply chain services for customers' export products of new tobacco; Hong Kong Hengtian is mainly responsible for tobacco and new tobacco-related product import/export trade and marketing; Indonesia Yunpu Xinghe promotes trade and operational services in Indonesia, leveraging its advantages in localized management to expand its new tobacco business to countries such as Russia, Japan, the United States, and the United Kingdom. In the first half of this year, Indonesia Jinjia's new tobacco has obtained local production qualifications and completed trial production. The production line is now entering the stage of capacity ramp-up, and the product yield is continuously improving. The company benefits from the operational management experience and core competencies accumulated in the domestic market in previous years, giving it a unique advantage in the development of HNB products and disposable e-cigarettes. Through thorough market research and user feedback and improvements through multiple rounds of tracking in overseas markets, the company has developed products that can meet different market demands. Currently, the promotion of the new tobacco overseas market has achieved certain results, and the company is confident in expanding its presence in overseas markets.

Question: Which category of vape products does the company primarily focus on, and through which channels are they promoted?

Answer: The company develops and produces e-cigarette products, including disposable e-cigarettes and pod system products, to meet the various needs of different customers in different regions. Regarding promotional channels, each country has its own unique policies on e-cigarettes, so our promotion strategies will be adjusted according to local policies and consumer characteristics. With the advantage of its subsidiary, Hong Kong Hengtian, and years of development, the company has accumulated a group of high-quality overseas agents who not only have deep market insights but also perform well in their respective markets. Additionally, the company conducts marketing and promotion through self-built channels and cooperation with local top-quality agents.

Question: What is the reason for the year-on-year decline in the gross profit margin of the new tobacco product?

Answer: The gross profit margin of the company's new tobacco industry products decreased by 3.98% year-on-year during this reporting period. The main reason for this decline is that there has been a change in the statistical scope of the new tobacco business. This year, the company adjusted its business by adding the e-cigarette supply chain, which has a lower gross profit margin but contributes a larger portion of revenue. As a result, the overall gross profit margin of the new tobacco business was lowered after the data was aggregated. In the future, as the company expands its overseas operations and establishes deeper partnerships with customers through providing tailored services, the long-term outlook for this sector's development is positive, and the gross profit margin level is expected to improve.

Question: What considerations led to the company's decision to sell a portion of its subsidiary, and how significant will the impact be on the company's performance?

Answer: The company has transferred partial ownership of its subsidiaries Anhui Antai and Guizhou Jinjia. This move is essentially aimed at adjusting the operational models and cooperation methods of the subsidiaries, allowing them to better access resources and facilitating their sound operation and development. As a result of the transfer, Guizhou Jinjia and Anhui Antai will no longer be consolidated, and the operating results of the two subsidiaries will be accounted for based on the company's shareholding ratio, reflected in the investment gains reported periodically. The proceeds from the partial ownership transfer of the subsidiaries will enhance the company's capital strength, providing strong support for expanding business and promoting the company's healthy development.

Question: What are the advantages of centralized procurement of raw materials in the supply chain?

Answer: Implementing centralized procurement of raw materials, mainly cigarette paper, is significant for the company. Unlike decentralized procurement, centralized procurement has significant economies of scale and can effectively reduce procurement costs. Secondly, implementing centralized procurement for raw materials can unify procurement standards, improve procurement quality, and raise the level of procurement supply management, thereby reducing potential risks caused by decentralized procurement. In addition, centralized procurement further enhances the company's bargaining power, maintains long-term positive cooperative relationships with suppliers, obtains better quality services from suppliers, and helps promote the smooth development of relevant businesses, achieving win-win cooperation between both parties.