2021-12-05-瑞士信贷集团-中国电子烟_受法规限制_43页_1mb

China E-vaping Sector Analysis Summary

Date: 6 December 2021
Authors: Jesalyn Wong, Harriet Liu
Firm: Credit Suisse

Key Points:

1. Market Overview:

   • E-cigarettes are viewed as a structural trend, driven by ease of use, diverse flavors, cost efficiency, and health benefits compared to traditional tobacco.
   • Global Market: Expected to grow at 13% CAGR through 2025E, increasing penetration from 7.6% in 2020 to 10.7%.
   • China Market: Highest growth potential at 23% CAGR, due to low base and rapid adoption.

2. Regulatory Risks:

   • Regulations are the biggest overhang, especially with the potential classification of e-cigarettes as tobacco products, leading to higher taxes (36-56%) in China.
   • US Market: PMTA approval for Vuse provides some relief, but concerns remain.
   • China: Plans to cap nicotine levels at 20mg/mL, increase scrutiny, and prohibit sales to minors.

3. Industry Structure:

   • Closed vs. Open Systems: Closed systems (e.g., pods) lead growth at 16% CAGR due to convenience; open systems (customizable) grow slower at 7% CAGR.
   • Competitive Landscape: China and the US are more consolidated, while Europe is fragmented.

4. Upstream vs. Downstream:

   • Upstream companies (e.g., Smoore) are preferred due to less regulatory risk from geographical diversification.
   • Recommendations:
     • OUTPERFORM: Smoore (HK$62.50), Huabao (HK$27.30).
     • UNDERPERFORM: RLX (US$3.50).

5. Key Risks:

   • Intensified regulations, demand slowdown, and increased competition.

6. Valuation & Outlook:

   • Smoore’s target price: HK$62.50 (45x 2022E P/E).
   • Huabao’s target price: HK$27.30 (42x 2022E P/E).
   • RLX’s target price: US$3.50 (23x 2022E P/E, reflecting high China regulatory risk).