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A Vaping Billionaire Only Got Richer After China’s Online Ban

https://www.bloomberg.com/news/articles/2020-12-21/a-vaping-billionaire-only-got-richer-after-china-s-online-ban

By Venus Feng

and Richard Macauley

December 22, 2020, 3:24 AM GMT+7

 

Since China banned online sales of e-cigarettes about a year ago, the industry has mushroomed offline with not even the coronavirus crisis stopping the expansion. RELX Technology, the country’s largest player, opened more than 1,000 stores in the first half of 2020, and said in January it planned to add 10,000 outlets within the next three years. Its rival, Yooz, has also boosted the number of stores. That’s good news for Smoore International Holdings Ltd., the largest maker of vaping devices and components for brands around the globe. Its shares have more than quadrupled since its July debut, making it one of Hong Kong’s best-performing initial public offerings of the year.

“Industry leaders like RELX and Yooz in China managed to expand offline at an amazing speed,” said Zhang Xiao, an analyst at Great Wall Securities. “They more than doubled their number of stores this year, and both are clients of Smoore.”

Big Winners

The big winners include Smoore founder Chen Zhiping, whose net worth has surged to $14.2 billion, and its vice general manager, Xiong Shaoming, whose stake is now worth $2.1 billion, according to the Bloomberg Billionaires Index. An outside spokeswoman for the company declined to comment. Chen, 45, founded Smoore in 2009, a decade after graduating from Shanghai’s Tongji University with a major in marketing. He based his company in

Shenzhen, the Chinese city just across the border from Hong Kong that benefited from a government push to open up the economy at the time. Since then, it’s become China’s tech hub.

While the coronavirus outbreak affected Smoore’s production and operations in the first quarter of the year, it still managed to post a 19% increase in revenue to 3.9 billion yuan ($592 million) for the first six months, with more than half of its sales coming from mainland China and Hong Kong.

“Smoore’s growth momentum can be sustained despite the global macro headwinds,” said Carlton Lai, an analyst at Daiwa Capital Markets in Hong Kong, adding that it’s benefiting from its customers’ rising market share. “The demand for vapes tends to be inelastic, and its adoption is still increasing.”

Expanding Market

Smoore held one-sixth of the global market share for vaping products by revenue last year, and that pie is poised to grow further, according to Frost & Sullivan data it cited in its prospectus. The $36.7 billion global e-cigarette market will reach $111.5 billion by 2024, increasing at an annual compound rate of 25%, projections show.

That’s even as regulation remains an ongoing obstacle. China’s online sales ban last year was followed by restrictions on flavored e-cigarettes in the U.S., a market that accounted for 17% of Smoore’s sales in the first half of the year and where the Food and Drug Administration has been clamping down on illegal sales. There, Juul Labs Inc., once a Silicon Valley darling, cut its valuation to about $10 billion in October from an estimated $38 billion two years earlier amid regulatory setbacks, lawsuits and reputational damage from an outbreak in lung injuries among vapers. South Korea, India and Brazil are among other countries that have announced vaping bans.

“Regulation is always a very important parameter in the industry,” said Great Wall Securities’ Zhang, adding that she remains optimistic about Smoore’s future growth as the company has invested more heavily than its competitors. “So far, the main purpose of regulation in China is to make a balance between teenager protection and social health-risks reduction.”

The restrictions haven’t scared off investors. Stocks linked to China’s consumer sector have been particularly popular this year as the nation has been among the first to emerge from the pandemic.

‘Original Aspiration’

Smoore shares attracted more than HK$11.2 billion ($1.4 billion) from mainland investors through Dec. 10 since joining the stock-connect program shortly after its Hong Kong listing, according to data compiled by Bloomberg. That’s the most after tech giants Tencent Holdings Ltd., Meituan and Xiaomi Corp.

Chen isn’t looking at the short-term success, though. His focus is growing the company over the next five years, he said following Smoore’s debut, according to a Chinese media report.

“We will remain true to our original aspiration and stick to our dreams,” he said at the company’s virtual-listing ceremony.

— With assistance by Mengchen Lu

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