Smoore Defies Coronavirus, Trade War to Expand Capacity amid Booming Sales

The world’s biggest maker of vaping device has shrugged off the challenges of coronavirus, the US-China trade war and tougher regulations to report a huge increase in profit.

Smoore International Holdings, based in Shenzhen, China, posted a 40 per cent year-on-year jump in underlying net profit on Monday for the first half of 2020, to 1.3 billion yuan. Revenue rose 18.5 per cent to 3.88 billion yuan.

“In the year’s first quarter, our sales dropped 8.8 per cent year-on-year, as the pandemic curtailed our production capacity for a month,” chief financial officer Wang Guisheng told reporters on Tuesday.

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“We quickly resumed normal operation, with second-quarter revenue doubling from the first-quarter, and rising 38.9 per cent year-on-year.”

Last year Smoore, which recently listed in Hong Kong, enjoyed a 16.5 per cent share of the $763 billion global vaping devices market, up from 10 per cent in 2018, said Wang.

While only half its production capacity was used in the first six months, the company is undergoing phase one expansion that it says will double it next year. Phase two expansion will boost production by a further two thirds by 2023.

“The expansion will further drive down our unit production cost through automation,” said chair Chen Zhiping.

Vaping inhaling the vapour produced by an electronic cigarette is an alternative for smokers, an increasing number of whom are put off traditional cigarettes because of rising taxes and stricter policies worldwide aimed at discouraging the habit on health grounds.

Global e-cigarette sales are projected to see compound annual growth of 25 per cent between last year and 2024, compared to 5.2 per cent for traditional cigarettes, according to Frost & Sullivan, a firm Smoore hired to help prepare market research for its listing prospectus.

That would take the market share of e-cigarettes to 9.3 per cent from 4.2 per cent in that five-year period.

China produces 90 per cent of the world’s e-cigarettes, of which 90 per cent are exported, according to Smoore’s listing prospectus. The industry is concentrated in Shenzhen, the country’s technology hub, which hosts more than 600 e-cigarette manufacturers.

The health risks associated with vaping have been under scrutiny, and still remain unclear.

In 2016, the World Health Organization recommended that governments consider prohibiting their use in indoor areas to protect non-users from second-hand aerosols, issuing warnings on the potential health risks and imposing higher taxes on their purchase.

The US government has demanded that distributors register all existing e-cigarette products with the Food and Drug Administration by September 9, and provide scientific data to demonstrate they are appropriate from a public health perspective.

They must disclose the products’ ingredients, additives, properties and health risks including a risk comparison with other tobacco products.

The FDA will use the information to make marketing authorisation decisions.

The US made up around half of Smoore’s sales, while 18.6 per cent came from mainland China and 12.5 per cent came from each of Japan and Europe.

Chen said the company had made a filing to the FDA for one of its self-branded products, and has been assisting with its US customers’ filings.

Since 2018, its US customers have had to pay a 25 per cent additional import tariff as part of the fallout from the trade spat between Washington and Beijing.

The firm said the tariff has not stopped US demand from growing since its products are “technologically superior”.

(Source: Yahoo News)