Incident: On June 24, SMORE announced that four non-tobacco-flavored e-cigarette products from our customer NJOY passed FDA related reviews and obtained PMTA authorization.
Policy change: The US FDA approved non-tobacco-flavored e-cigarette products for the first time, which is significant!
According to the FDA's official website, the FDA officially announced that four menthol e-cigarettes from the NJOY brand have passed the relevant review and obtained PMTA authorization: NJOY ACE Pod Menthol 2.4%, NJOY ACE Pod Menthol 5%, NJOY DAILY Menthol 4.5%, and NJOY DAILYEXTRA Menthol 6%. The first two products mentioned above are two menthol cigarettes with different nicotine content from ACE, a retractable product of NJOY; the latter two are NJOY's menthol disposable products with different nicotine content, DAILY.
The announcement of this news is of two major significance:
1) After a lapse of 742 days, the FDA once again granted PMTA authorization for e-cigarettes; according to the FDA's official database, the last time the FDA granted PMTA authorization for e-cigarettes dates back to two products on June 10, 2022. They are also from the NJOY brand, a disposable product with two tobacco flavors, NJOY DAILY;
2) Menthol e-cigarettes have finally been recognized by the FDA for their safety, and PMTA approval was granted for non-tobacco flavors for the first time; also, according to FDA official data, the 23 SKU flavors that have been previously given only have tobacco flavors, and do not include any non-tobacco flavors.
On the industry side, this is the first time that the FDA has approved menthol-flavored e-cigarettes, marking that the harm-reducing properties of e-cigarette products have been recognized, and compliant companies that meet technical and safety requirements are expected to benefit in the future.
Company advantage: The company supplies all NJOYLLC approved products and is expected to benefit from the development of the compliance market in the long term
This time, all 4 authorized products were manufactured by the company. In addition, the company also participated in the OEM of many other approved products. The company's customer, NJOYLLC, has obtained marketing licenses for 10 new tobacco products (including 1 NJOY ACE closed e-cigarette device, 5 NJOYACE tobacco-flavored and menthol-flavored closed e-cigarettes, 4 NJOYDAILY tobacco-flavored and menthol-flavored disposable e-cigarettes) through pre-marketing tobacco product applications. This year, SMOORE is supplying these 10 products that have been approved by NJOY LLC.
Menthol-flavored products are popular and are expected to drive the company's sales growth. According to the CDC, menthol-flavored products accounted for about 30% of the US e-cigarette market shipments in 2023, accounting for about 50% of exchangeable product shipments, which is a key category in the US market. As a supplier to NJOY, the company is expected to fully benefit.
In the future, as the PMTA review standards are gradually clarified, the speed of approval may accelerate, thereby promoting the strengthening of enforcement, and the market share of leading brands is expected to continue to increase. Non-compliant products may be phased out at an accelerated pace, and the market competition pattern will gradually return to a healthy state. Looking at the medium to long term, we believe that with the general trend of “tobacco-like management” in the US e-cigarette market, the resources and technical reserves of big brands and companies can cope with rising entry thresholds and regulatory costs in the context of stricter regulations, and the competitiveness and market share of leading brands is expected to continue to increase.
Profit forecasting and investment advice
We believe that as a global leader in providing atomization technology solutions, the company's barrier advantages continue to be highlighted, and it is expected that the concentration of the industrial chain may increase at an accelerated pace. We expect the company's net profit for 2024-2026 to be 16.64/20.71/2,462 billion yuan, an increase of 1.16%/24.46%/18.88% year-on-year. Maintain a “buy” rating based on the company's technology and leading edge.
Risk warning: Risk of changes in new tobacco policies, risk of changes in US FDA regulations, risk of sales falling short of expectations, risk of consumer expansion falling short of expectations, risk of company capacity building falling short of expectations, risk of new technology development falling short of expectations, risk of price changes, exchange rate risk.