Items:
On June 23, the US FDA (Food and Drug Administration) issued a MDO (marketing ban) to JUUL, refusing to authorize all JUUL products on sale in the United States, including e-cigarette equipment and four types of cigarette cartridges:
Virginia tobacco flares (nicotine 5.0% and 3.0%) and menthol-flavored tobacco bullets (nicotine 5.0% and 3.0%).
Comments:
JUUL harm reduction proof is insufficient, Dragon II may passively clear the US market. FDA pointed out that the JUUL application lacks sufficient evidence about the toxicological characteristics of the product to prove that the product is marketed to protect public health.
In particular, FDA noted that some of the studies provided by JUUL provided insufficient and contradictory data, including data on genotoxicity and potentially harmful chemicals leached from the company's proprietary electronic liquid smoke bombs, which prevented FDA from completing a complete toxicological study, conducting a risk assessment of the products specified in the company's application, and therefore unable to determine the potential risk of approval. Therefore, JUUL must immediately stop selling and distributing related products, and products on sale must also be removed from the market, otherwise they will face compulsory enforcement by FDA.
It is expected that the approved brands will benefit from the industry reshuffle. According to Nielsen offline retail data, JUUL's market share of bullet-changing e-cigarettes in the United States is about 33%, lower than VUSE's (35%). We believe that the failure of JUUL is mainly based on the fact that its own products cannot prove the toxicological characteristics, as well as the adverse effects of a series of lawsuits in the company's history on young people.
With reference to the results of NJOY Ace audit, we are still optimistic about VUSE Alto review. On April 27, the NJOY Ace bullet replacement product using Smoore International Holdings Limited FEELM ceramic core technology passed the examination PMTA,FDA pointed out that the overall level of harmful and potentially harmful substances (HPHCs) of the product was lower than that of traditional cigarettes, which fully confirmed the help of Seymour ceramic core technology to product damage reduction. VUSE Alto is the largest downstream brand of Smoore International Holdings Limited, the technology is homologous with NJOY Ace, the harm reduction has been verified, and the audit results remain optimistic. At present, VUSE has the largest market share in the United States (35%) and is an established leading brand. If it is approved in the future, the market share is expected to expand again.
Smoore International Holdings Limited's market share is expected to expand with its head customers. The normalization of supervision promotes the acceleration of downstream integration, Smoore International Holdings Limited's manufacturing R & D capability is outstanding, the product is of high quality, and the big customers are likely to pass the audit.
In the context of supply-side clearing, the company's market share is expected to benefit from the expansion of head customers. We estimate that the 2022-24 return net profit of the company is 5.03 billion 6.23 billion yuan, and the corresponding share price PE is 28.9, 22.1, 17.8 times. The DCF valuation gives the target price HK $24.8, corresponding to 33.2 times PE,2023 in 2022 and 25.3 times PE in 2022, maintaining a "strong push" rating.
Risk tips: supervision is stronger than expected, competition in the industry intensifies, and customer orders are lost.