E-cigarette companies' profits will be under pressure for some time, and both domestic and foreign markets are unfriendly.

On October 14, Simer International (06969.HK) announced that the third quarter unaudited total earnings of the group was 704.4 million yuan, down 42.2% year on year.

Compared with the global market, China's e-cigarette market started late but developed rapidly. From 2016 to 2021, the compound growth rate of revenue of Simer International in mainland China was up to 115.1%, with a rapid growth trend, and the revenue proportion increased to 40% in 2021.

This situation can also be supported by the situation of China's local brand e-cigarette leader Wogwick Technology. Wogwick Technology operates the Yuekern brand, and its sales revenue continues to grow rapidly. It was listed in just three years, and its market value was once close to $50 billion.

However, the situation is completely different from when it went public. Due to strict control requirements, e-cigarettes are almost regulated as cigarettes. The sales of Wogwick Technology in the first half of this year are declining. Net revenue in the first quarter was 1.71 billion yuan ($270 million), down 28.5% from a year earlier.

Fog core technology mainly depends on Simer OEM, Fog core technology revenue decline, directly affect the sales revenue of Simer. The leaders are falling, so other Chinese brands can imagine the situation.

Simol third quarter profit continued to decline, but also to the fog core technology sounded the alarm. The third quarter is the National Day, before the fruit of e-cigarettes banned, to sell national standard e-cigarettes. It is expected that companies will reduce production in order to reduce inventories.

In addition to the general acceptance of national standard cigarettes, the terminal retail industry is also a big problem. Under the strict requirements of retail and circulation policies, many e-cigarette shops choose to close, which will affect the sales of e-cigarettes.

Recently, the reporter communicated with e-cigarette enterprises, and they are very pessimistic about the domestic market. Some industry insiders said that they would give up domestic enterprises, and that moving to Southeast Asia is a trend.

The domestic market will continue to shrink for a long time, and both Mowcore Technology and Simer International will be affected by this. The valuation model given under the previous high growth is no longer applicable, and the market value of the two companies has fallen by more than 90% relative to the peak, among which the adjustment range of Mowcore technology is more drastic.

The main reason is that Wogwick's business is all in China, its international business is not in the listed company system, and it is not easy for Chinese brands to explore the international market. Simol's main business is contract manufacturing, accounting for 60% of the overseas market, the overseas market is relatively stable.

Think Moore in overseas product upgrading problems, think Moore developed ceramic core for play little smoke, fog which is core technology major domestic brands of products, such as in the United States the world's largest market, basically eliminated in play little smoke, popular one-time little smoke, one-time little smoke more convenient, need not charge also need not in play, Because the amount of oil in disposable small cigarettes is relatively large, it is actually equivalent to a disguised price reduction, catering to the consumption downgrade of overseas consumers, which is mainly because consumers are reducing their spending under the pandemic. If you want to capture the American market, it is necessary to produce disposable small cigarettes. The switch to disposable small cigarettes is bound to affect the gross margin.

In the announcement, Simol International pointed out that the third quarter total revenue decline is mainly due to the year-on-year decline in gross margin, mainly due to the first half of the first half of the individual large customers to reduce the price of products, at the same time, the lower gross margin of the one-time atomization business has a greater growth, accounting for the proportion of the overall business has increased.