The turmoil in the electronic cigarette industry continues. According to the latest information from the national unified electronic cigarette trading management platform, brands such as MOTI and YOOZ (WUXIN TECHNOLOGY (RLX.NYSE)) plan to reduce the prices of multiple national standard electronic cigarette pods by more than 10% on April 17. On the other hand, the recent performance forecast for 2022 from the electronic cigarette vaporization giant Smoore International (06969.HK) shows that the company's revenue is expected to decline by about 50% last year, citing reasons such as the lowered prices of certain products for some major customers.
Behind the big players that are offering price concessions, many industry insiders consulted by reporters believe that the concessions made by leading domestic companies are related to the maturity of the industry. "For the Chinese market, in the early stages of industry development, profits were high in each stage of production of electronic cigarettes. As competition intensifies and the market becomes more mature, it's normal for companies to choose to offer price concessions," said Guo Xiaoyu, Chief Operating Officer of 2FIRSTS. Looking at the global market, demand for electronic cigarettes remains high. Many analysts believe that "going global" has become the primary direction for development of major electronic cigarette industry chain enterprises. A spokesperson from Yingqu Technology (002925.SZ) Securities Department also told reporters that their electronic cigarette products are mainly sold overseas and are therefore less affected by domestic environmental changes.
The major electronic cigarette manufacturer has seen a significant decline in its performance.
Chinese e-cigarette companies faced a significant challenge last year, according to Zhang Yi, Chief Analyst at iMedia Consulting. Yi explained to reporters that the cooling domestic sales of e-cigarettes were due to two main factors. Firstly, a series of regulatory documents were introduced by the government last year, which made requirements for the e-cigarette industry's chaos, access channels and related standards. As a result, the market went through a series of adjustments.
Secondly, currently, e-cigarettes are no longer allowed to be purchased online and are mainly sold through offline channels. Due to the impact of the pandemic last year, there has been an increase in difficulty purchasing e-cigarettes, leading to a decrease in sales.
The year 2022 can be considered a pivotal year for the domestic electronic cigarette market as strict measures, such as the suspension of fruit flavors, halting of deliveries, and increased taxes have been implemented, causing a significant upheaval within the industry.
Samuel International recently released its performance forecast, estimating a total revenue of RMB 2.305-2.817 billion for the fiscal year 2022, a decrease of 46.7%-56.4% YoY. Adjusted net profit is expected to be RMB 2.385-2.897 billion, a decrease of 46.8%-56.2% YoY.
It is worth noting that apart from the expected decrease in revenue from the Chinese and American markets and increased research and development investment for new business development, the company also announced that the reduction of product prices for specific major customers and a year-on-year decline in gross profit margin were among the main reasons for the decline in performance.
Another e-cigarette company, Woxin Technology, which owns the brand Yooz, will soon cut prices by 12% to 15% on several pod products, including the Phantom and Qingyu, in April. Last November, when the e-cigarette consumption tax was just introduced, the Yooz Phantom and Qingyu pods saw a price increase of up to 66% and 75%, respectively, but this price increase is about to be reversed.
The electronic cigarette industry was once known for its "huge profits". According to the 2021 financial reports of SMOORE International and Wuxian Technology, the gross profit margins of the two companies are 53.6% and 43.1% respectively, far exceeding those of most companies in the electronic manufacturing industry.
The recent moves by industry giants to give back to consumers are largely attributed to increasing competition and maturation of the electronic cigarette industry, according to industry experts. Guo Xiaoyu explains that the industry is gradually moving towards a mature market, where competition is intensifying. Consumers have been educated and are beginning to compete based on factors such as brand, price, and distribution channels. Although the industry is still growing, it is no longer in its early stages and all aspects of the industry are maintaining high profit margins.
Which direction is the industry heading towards?
Despite the turbulence in the domestic market, the electronic cigarette industry is rapidly growing as an emerging sector. Zhang Yi stated, "From a global perspective, the replacement of traditional tobacco with electronic cigarettes is highly valued by smokers. Therefore, the positive development trend of electronic cigarettes is quite clear.
According to research data from P&S Intelligence, the global electronic cigarette market is projected to reach a total value of 17.9011 billion US dollars by 2022, and is expected to grow at a rate of 10.1% in the coming years to reach 38.6311 billion US dollars by 2030.
For domestic companies, expanding overseas has become a crucial strategy due to the tightening regulatory environment and intensifying market competition in China's domestic market, particularly in the electronic cigarette industry.
Our products are mainly sold overseas and are less affected by policies," said a representative from the securities department of Yingqu Technology to reporters. They have recently launched the core components of electronic cigarettes, which are currently being shipped in small quantities and are expected to increase steadily. The reason for this is because the product is suitable for fourth-generation electronic cigarettes, which the industry has high expectations for.
Zhang Yi told reporters that currently, the preferred direction for industry chain enterprises is the export of electronic cigarette raw materials and semi-finished products. This sector is relatively more certain and less affected by policy and environmental factors.
According to the "2022 E-Cigarette Industry Export Blue Book" released by the E-Cigarette Professional Committee of the China Electronic Commerce Association, China's e-cigarette export scale reached 138.3 billion yuan in 2021, an increase of 180% year-on-year. It is expected that the export revenue will reach 186.7 billion yuan in 2022, a year-on-year increase of 35%, and the export market remains broad.
From the perspective of industrial development, Guo Xiaoyu believes that the domestic electronic cigarette industry is mainly facing two challenges.
The first issue is the changing industrial policies. According to Guo Xiaoyu, many regions currently have unclear policies regarding electronic cigarettes that are constantly changing, causing significant impacts as industry chain enterprises receive encouragement or restrictions at different times.
Next is the innovation of product categories. "Currently, electronic cigarette products are not stable, and there has not been a product with the cross-generational appeal of the Apple iPhone. Once iterative technology brings iterative products, the leading players will be reshuffled.
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