Event
On June 23, 2022, the US Food and Drug Administration (FDA) announced on its website a marketing refusal order (MDO) to Juul, requiring the company to stop selling and distributing all Juul products currently on sale in the US market, including Juul e-cigarettes and four types of Juul cartridges, that is, Virginia tobacco flavored bullets with a nicotine concentration of 5.0% and 3.0%. And mint smoke bombs with nicotine concentrations of 5.0% and 3.0%.
Brief comment
Juul received a marketing refusal order (MDO) from PMTA because FDA believed that the safety of its products could not be verified and exacerbated the popularity of e-cigarettes among teenagers. Juul submitted its PMTA application in July 2020. 1) the evidence on the toxicological characteristics of the product in the Juul application is not sufficient to prove that the product is suitable for the protection of public health, especially some of the research results have problems such as insufficient data and data contradictions, including genotoxicity and potentially harmful chemicals leached in the company's proprietary electronic liquid smoke bomb, the FDA said in a ban statement. And FDA believes that it is impossible to know the potential risks of using Juul equipment in combination with third-party cigarette sticks & smoke cartridges. 2) the commissioner of FDA said that many e-cigarette products with a large market share in the United States have intensified its popularity among teenagers, after Juul has triggered lawsuits for its aggressive marketing among American teenagers.
The market pattern of atomized e-cigarettes in the United States will change, and brands such as Vuse and Njoy are expected to benefit. According to Nielsen's latest analysis of convenience store data for the four weeks to May 21, 2022, Vuse's market share in the United States is 35.1%, Juul is 33.1%, and Njoy's market share is 3%. After Juul is rejected, it will benefit its competitors Vuse, Njoy and so on. Among them, Njoy's main product Ace (ceramic core) has passed PMTA,Vuse 's existing Solo, Ciro and Vibe products through PMTA (the main product Alto is still under review). Juul respects but disagrees with FDA's findings and decisions and will try to appeal or other options. Whether the subsequent Juul will withdraw completely from the US market still needs to be tracked continuously.
With reference to the approval of Vuse, Logic, Njoy and other brands PMTA, we expect that Vuse Alto has a high probability of passing, and the time is expected to be in the second half of 22. As of June 22, FDA has passed the PMTA application of 23 e-cigarettes from Vuse, Njoy and Logic brands. With reference to rejected brands such as My blu and Juul, FDA still needs sufficient reasons to prove that its products are safe and harmless. We expect that the Vuse Alto, which accounts for about 90% of the revenue ratio of the Vuse series, which is mainly manufactured by Si Moore, has a high probability of passing. 1) many products of the Vuse brand have been approved: Vuse Solo is the first PMTA approved e-cigarette, and then two Vuse Vibe&Ciro products have been approved one after another. 2) Si Moore ceramic core has been approved by FDA (Njoy Ace has been approved): the Njoy Ace (using Si Moore ceramic core) of Si Moore OEM has passed the PMTA audit in April 22, mainly because FDA recognizes its harm reduction compared with traditional cigarettes, and also confirms the safety and harm reduction of Si Moore ceramic core from the side. Among them, Vuse Alto technology is homologous to Njoy Ace, and both use Seymour FEELM atomizing core. The PMTA review in the United States is speeding up. It is expected that the review of 240 mainstream product PMTA applications will be completed before June 30, 22, and all 240 PMTA applications will be completed by June 23. Based on the waiting period of the application results (about 2 years), we infer that the VuseAlto that submitted the application in September 2020 is expected to receive approval results in the second half of 2022.
The follow-up should focus on the audit of menthol-flavored e-cigarettes. Since the implementation of the e-cigarette flavor ban in the United States in early 2020, e-cigarettes other than tobacco and menthol flavors (fruits, etc.) have been gradually cleared out. By February 2022, the sales of bulletproof electronic cigarettes with tobacco flavor and menthol flavor in the United States accounted for 38% and 62%, respectively. At present, FDA has not issued any statement on the authorization of menthol e-cigarette products. Previously, menthol-flavored smoke bombs of My Blu and Njoy Ace are under review, and the Juul (including menthol flavor) received marketing rejection MDO. We believe that the follow-up should focus on the progress of menthol-flavored PMTA review.
Investment advice: PMTA audit in the United States is gradually accelerated, Vuse's main product Alto is still under review, the probability of passing is expected to be high.
The Alto of Ace and Vuse, the main e-cigarette products of Njoy, are both manufactured by Smoore International Holdings Limited. Seymour is deeply bound to the leading customers in the US market, and is expected to benefit from the continuous increase in customer market share. Based on the impact of the ban on domestic taste tobacco on the domestic market and the increase in the company's R & D expenditure over the past 22 years, we lowered the company's performance forecast and estimated Smoore International Holdings Limited's operating income of 153.1 yuan, 190.2 yuan and 23.5 billion yuan from 2022 to 2024, an increase of 11.2%, 24.2% and 23.6%. The net profit of homing from 2022 to 2024 was 39.7,50.1 and 6.27 billion yuan, which was-24.9%, 26.2% and 25.1% compared with the same period last year, corresponding to the latest PE of 30, 24 and 19x respectively, maintaining the "buy" rating.
Risk tips: major customer e-cigarette product PMTA rejection risk, gross profit margin decline, new technology replacement risk