(Original title: The stock price of Fog Core Technology, which has a limited taste and a profit of 2.25 billion, will not be “cleared” under the “new national standard”)
Financial Associated Press | New Consumer Daily (reporter Gao Mengyang intern Dong Jingyi) news,On March 11, FogCore Technology released its unaudited financial report for the fourth quarter and full year of 2021.
According to the financial report, Fog Core Technology’s net income in the fourth quarter of 2021 increased by 17.7% to 1.904 billion yuan from 1.619 billion yuan in the same period in 2020. For the whole year, the annual revenue in 2021 will be 8.521 billion yuan, a year-on-year increase of 123.1%. Under non-GAAP accounting standards, the adjusted net profit was 2.252 billion yuan, a year-on-year increase of 181.1%.
Successfully turned losses into profits and achieved outstanding performance, but Foscore Technology was not happy.
On March 11, the State Tobacco Monopoly Administration announced that it had formed the national standard for “electronic cigarettes” (the second draft for comments), and also issued the “Measures for the Administration of Electronic Cigarettes”.
As soon as the news came out, Fogcore Technology‘s pre-market decline expanded to 20%, superimposed on the impact of the collective plunge in Chinese concept stocks, and finally Fogcore Technology‘s share price fell by 36%.
Wang Ying, founder, chairman and CEO of Fog Core Technology, said in the earnings conference call that Fog Core Technology supports the new national standard opinions, and the new regulations clarify the direction of the company’s future business development, eliminating the uncertainty of time and transaction mode, ” We believe that the new standards and measures will significantly increase the adult smoking population’s acceptance of the harm-reducing properties of products, and that restrictions on flavors will not affect the core harm reduction needs of millions of traditional smokers.”
The biggest difference from the management measures at the end of last year and the first draft of the national standard is that the new national standard emphasizes that minors should not be induced, and that the characteristic flavor of the product should not show other flavors than tobacco. The “Measures” added that “the initial public offering and listing of the above-mentioned enterprises should be reported to the tobacco monopoly administrative department of the State Council for examination and approval”.
Obviously, the entire electronic cigarette track is about to bid farewell to the era of barbaric growth.
The net profit for the year was 2.25 billion, and Fogcore Technology turned losses into profits
Despite the repeated epidemics in 2021 and many changes in the regulatory level of e-cigarettes, Fog Core Technology has achieved good results as an industry leader. In terms of finance, net income in 21Q4 increased by 17.7% year-on-year, and in 2021, the net income for the whole year increased by 123.1% year-on-year .
Net income from sales to offline distributors increased significantly due to the expansion of the company’s distribution and retail network.
According to the financial report, in the fourth quarter of 2021, the company’s net revenue increased by 17.7% year-on-year to RMB 1.90 billion and the annual revenue was 8.521 billion yuan. Under non-GAAP accounting standards, adjusted net profit was 537 million yuan, an increase of 27.9% from 419 million yuan in the same period last year. Gross profit reached 766 million yuan, a year-on-year increase of 10.3% from 694 million yuan in the same period in 2020. Gross profit margin was 40.2% compared to 42.9% in the same period in 2020. The adjusted net profit for the year was 2.252 billion yuan, a year-on-year increase of 181.1%.
As of December 31, 2021, Fog Core had cash and cash equivalents, restricted cash, short-term bank deposits, short-term investments and long-term bank deposits totaling RMB 14.86 billion (US$2.33 billion).
It is worth noting that the gross profit margin of Fogcore Technology in 2021Q4 was 40.2%, compared with 42.9% in the same period in 2020.
The New Consumer Daily learned that the main reasons for the decrease in gross profit margin were: the increase in direct expenses related to promotional activities and the increase in inventory expenses.
The financial report shows that operating expenses in 2021Q4 were 230 million yuan, down 72.8% from 850 million yuan in the same period in 2020. The decrease in operating expenses was mainly due to changes in equity-based compensation expenses, which decreased by 93.6% from RMB 656 million in the same period of 2020 to RMB 42.1 million in the fourth quarter of 2021, mainly due to the company’s share-based incentives for employees The fair value of the award is affected by the fluctuation of the company’s share price.
At the same time, the sales expenses of fog core technology decreased from 196.7 million yuan in 2020 to 46.6 million yuan in 2021Q4, a decrease of 76.3%. The decrease in this portion of expenses was primarily due to a decrease in share-based compensation expenses. The decrease in compensation and benefits was primarily due to a decrease in performance-based cash compensation. As for administrative expenses, this part of the expenses dropped from 447 million yuan in the same period of 2020 to 167 million yuan in the fourth quarter of 2021, a decrease of 62.6%.
Ban the sale of flavored electronic cigarettes, bid farewell to barbaric growth, but will not be cleared
In recent years, due to the existence of regulatory gaps and the disorderly development of the e-cigarette industry, some products have problems such as unclear nicotine (nicotine, the same below) content, unknown added ingredients, and leakage of e-liquid, especially some operators mislead consumers by propaganda. Inducing minors to smoke, infringing the physical and mental health of minors.
This means that the industry is in dire need of regulation.
In fact, the National Standardization Administration and the State Tobacco Monopoly Administration have already begun to formulate the national standards for “electronic cigarettes” (draft for comments), and will openly solicit opinions from the public from November 2021 to January 2022.
In fact, despite the strong reaction of the capital market to the policy, according to the New Consumer Daily, after the introduction of the administrative measures in December last year, many companies in the industry made active adjustments.
Taking Fog Core Technology as an example, on the one hand, trade and inventory have been reduced, including the opening of new stores during the transition period, while the inventory of retail channels has also been at a low level since Q1 last year. In terms of scientific research, Fog Core Technology has also continued to strengthen research on the harm reduction characteristics of e-cigarettes, and successfully registered clinical research in the China Clinical Trials Registration Center (the first-level registration center of the World Health Organization registration network) in February 2022.
However, this draft has new regulations on vaping, emphasizing that minors should not be induced, and that the characteristic flavor of the product should not present other flavors than tobacco. At the same time, it is also stipulated that the nebulizer should contain nicotine.
As for the “Administrative Measures for Electronic Cigarettes” that will be implemented soon, it means that the establishment of electronic cigarette production enterprises (including product production, OEM processing, brand holding enterprises, etc., the same below), atomization production enterprises and electronic cigarette nicotine production enterprises must be approved by Approved by the tobacco monopoly administrative department of the State Council, a tobacco monopoly production enterprise license has been obtained, and the registration has been approved by the market supervision and management department.
It is worth noting that the “Measures” also added that “the initial public offering and listing of the above-mentioned enterprises should be reported to the tobacco monopoly administrative department of the State Council for review and approval”.
Considering that the current mainstream e-cigarette brands in the market generally have e-cigarette products with rich flavors such as fruit and mint, this regulation will greatly reduce the attractiveness of their taste, and the mandatory regulation of nicotine also indicates that the road to nicotine-free e-liquid cannot be taken. Pass.
An industry insider told the New Consumer Daily that the new national standard and management measures emphasize that e-cigarettes must be flavored, sold and purchased, and production licenses are required. However, the purpose of regulation is to regulate the development of electronic cigarettes in the direction of harm reduction, rather than “killing them with one stick”.
For example, in the new national standard, tobacco is required as the main flavor, but there are flavorings in the temporarily licensed substance of atomizer additives. Temporarily allowed to add citral, geraniol, tea polyphenols, citric acid, malic acid, cocoa extract, coffee extract.
“Referring to overseas, taste restrictions will only have an impact in the short term, especially on existing stocks and preparations, but the long-term impact is limited.” Fog Core Technology stated that it believes that after the national “E-Cigarette Management Measures” come into effect, Chinese e-cigarette users will continue to use RELX products.
It is worth mentioning that the relevant regulators in Q4 2021 also introduced an electronic cigarette filing system, providing a way for all industry chain participants, including manufacturers, distributors and supply chain partners, to register their products, including Product characterization and validation.
These new regulations and regulations will significantly increase the entry barriers of the industry, and have little impact on overseas business, but have greatly optimized the domestic competitive environment.