China’s E-Cig Stocks Slump on Plans to Tighten Regulations
(Bloomberg) -- China’s electronic-cigarette stocks plunged after the government said regulations for the tobacco industry may also be applied to the sector.
Smoore International Holdings Ltd, which produces vaping devices, sank as much as 39% in Hong Kong trading, while China Boton Group Co. slumped as much as 40%. RLX Technology Inc.’s ADRs plunged 48% on Monday to close at a record low. China Tobacco International, the global unit of state monopoly China National Tobacco -- the world’s biggest maker of cigarettes -- rose as much as 24% Tuesday.
The draft measure, released late Monday by China’s Ministry of Industry and Information Technology, aims to regulate production and marketing of new types of tobacco products and prevent false advertising and quality issues. No details of how the changes will be implemented were given.
“The draft rule is stricter than expected,” Citic Securities analysts including Li Xin said in a note Tuesday. “In the extreme scenario, it may lower profit by as much as 25% for Smoore if no one except China Tobacco is allowed to sell the products.”
The brokerage maintained a buy rating on Smoore because it has stable overseas revenue to offset the potential sales damage, while downgrading RLX to hold.
The move could be the latest blow to the vaping industry after China banned online sales of e-cigarettes in late 2019. The nation has joined other countries globally in putting pressure on vaping amid concerns about potential adverse health effects.
The proposed change plan also hurt investor sentiment on companies that supply lithium battery to e-cigarette makers, with Eve Energy Co. dropping as much as 19%.
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