Prominent Companies Receive Tobacco Production Licenses in China

The State Tobacco Monopoly Administration has recently released a list of companies that have obtained the Tobacco Monopoly Production Enterprise License, which includes well-known companies such as Dongguan Alpha Electronics, BYD Electronics, and Heyuan Technology, among others.

Dongguan Alpha Electronics, a wholly-owned subsidiary established by A-share listed company Changying Precision Technology (300115.SZ) in 2019, began expanding into the electronic cigarette industry in 2020 and achieved breakthroughs in business that year. The company currently produces and sells a variety of products, including finished products such as atomizers and non-burning heating smoking utensils, as well as components such as pods for electronic cigarettes. After adding a new factory area in 2021, Dongguan Alpha Electronics' available production lines reached 50,000 square meters in area.

According to China's "Electronic Cigarette Management Measures" released in early March this year, companies engaged in electronic cigarette production (including product manufacturing, contract processing, and brand ownership), aerosol production, and e-cigarette nicotine production must obtain a tobacco monopoly production enterprise license before engaging in related business. The fact that Dongguan Alpha Electronics has obtained the "Tobacco Monopoly Production Enterprise License" indicates that the company has obtained the necessary credentials to engage in the e-cigarette industry and may gain a certain advantage in the industry competition.

Caitong Securities stated that the approval process for licensing for the production, distribution, and retail of electronic cigarettes in China is steadily progressing. The market is operating smoothly during the transitional period and is expected to continue to develop steadily and positively after the official implementation of national standards in October of this year. In the long term, the development trend of market demand is clear.

Why is Changying Precision actively entering the electronic cigarette industry? The reason is simple: the electronic cigarette market is large and has unlimited potential for growth. According to data, the global electronic cigarette market size will exceed $108 billion by 2022. This is still a market with a low penetration rate for electronic cigarettes in China. If the penetration rate of electronic cigarettes continues to rise in populous countries like China, the domestic market potential is limitless.

The massive market has also attracted the entry of many industry giants. Apart from Changying Precision, several publicly listed companies, including BYD Electronic, Luxshare Precision, Jingjia Shares, Jinlong Machinery & Electronics, Shunhao Shares, Jincheng Medicine and Biotechnology, Boton Technology, and Huabao Shares have all been actively expanding into the electronic cigarette industry.

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