On September 22, A-share e-cigarette sector showed significant gains, with constituent stocks Changying Precision (300115.SZ), Haishun New Materials (300501.SZ), Jiyou Shares (603429.SH), Yingqu Technology (002925.SZ), and Guoguang Electric (002045.SZ) hitting daily limit up.

On the news front, the State Tobacco Monopoly Administration recently announced the "Administrative Measures for Tobacco Products in Domestic Duty-Free Markets," which states that new tobacco products such as heated tobacco and e-cigarettes shall not be sold in domestic duty-free markets. The regulatory policies for the e-cigarette industry are gradually improving, and in the long term, non-compliant products will be gradually eliminated, with market share expected to concentrate further. Additionally, some e-cigarette companies have shown good performance or have positive earnings expectations.

For example, Yingqu Technology's increased e-cigarette production capacity and recovery in home engraving machine orders are driving stable growth in 2025 performance, which has contributed to the rise in the e-cigarette sector.

What Pain Points Does the New Policy Address?

For a long time, China's e-cigarette duty-free market has suffered from irregularities in business operations, unclear sources of overseas tobacco products, missing logistics traceability information, export backflow, smuggling, and illegal mailing. These issues not only disrupt normal market order and create unfair competition for legitimate enterprises, but also pose potential threats to consumer health.

This time, the State Tobacco Monopoly Administration's management measures explicitly prohibit the sale of new tobacco products such as heated tobacco and e-cigarettes in domestic duty-free markets, precisely to effectively address these irregularities.

Through full-process traceability management (such as QR code labeling and transaction management platform data feedback), product catalog access system (only products listed in the catalog can be sold), and planned price control, transparent supervision of the entire chain from production to retail is achieved. For example, starting July 2026, QR code traceability will be mandatory, ensuring that the source and flow of each duty-free tobacco product can be traced, plugging smuggling and backflow loopholes.

Tobacco tax accounts for nearly 7% of China's fiscal revenue and is an important fiscal pillar. Regulating the duty-free market can prevent tax revenue loss. Through unified state trading management (led by the State Council's tobacco monopoly administrative department for imports and exports), annual planning system (issuing sales/procurement plans), and price supervision (prohibiting collusion, price manipulation, fraud, etc.), the tax contribution of duty-free tobacco products can be ensured not to be weakened.

Furthermore, through centralized license approval authority (national-level approval for production/wholesale licenses) and unified technical standards (such as e-cigarettes requiring nicotine content, closed structure, and child-resistant activation features), enterprises are encouraged to enhance their independent intellectual property rights and brand awareness, transitioning from "wild growth" to "certified survival." Data shows that in 2024, 33 e-cigarette companies had their export qualifications suspended for failing to provide compliance certificates.

More importantly, as a signatory to the Framework Convention on Tobacco Control, China needs to fulfill its tobacco control responsibilities. The management measures reduce the risk of non-smokers and minors accessing tobacco products through restricting sales channels (such as prohibiting heated tobacco and e-cigarettes in duty-free shops), banning inducing marketing (such as excessive packaging and non-tobacco flavors), and age verification (such as mandatory ID recognition at retail points).

"Double-Edged Sword" Effect Emerges

For companies within the e-cigarette industry, the new policy is a "double-edged sword," having significant impact on related A-share listed companies.

For e-cigarette industry chain companies, Dongfeng Group has positioned itself in both atomization and heat-not-burn (HNB) directions. Its controlling subsidiary Taihu Guangyu has obtained a tobacco monopoly production enterprise license and is advancing overseas production and sales. Policy restrictions on duty-free channels will compress its domestic duty-free market share, requiring accelerated overseas expansion (such as Southeast Asia and Middle East) to hedge risks.

Jiyou Shares cooperates with Anhui China Tobacco to develop e-cigarette e-liquids and heaters, with controlling subsidiary Taihu Guangyu involved in new tobacco R&D. After duty-free channel sales restrictions, it may turn to domestic taxed markets or overseas exports, but needs to cope with increased compliance costs (such as product catalog declaration and QR code traceability).

Shunhao Shares conducts e-cigarette business through subsidiary Shanghai Luxin, undertaking sample manufacturing of heating atomizers for China Tobacco system and overseas market promotion. The policy will directly affect its duty-free channel revenue, requiring strengthened cooperation with overseas customers (such as Europe, America, and Southeast Asia) to maintain growth.

For heated tobacco-related companies, Shaanxi Jinye's subsidiary Yuyang Chemical Fiber produces polypropylene tow and filter rods for heat-not-burn cigarettes, possessing core patents for "cooling material PLA filter rods." After policy restrictions on heated tobacco duty-free sales, its filter rod business may turn to domestic taxed markets or exports.

Kesen Technology is involved in producing metal structural components for heat-not-burn e-cigarettes, with customers including well-known e-cigarette brands. Duty-free channel restrictions will affect demand for its supporting products, and it can expand die-casting component business in consumer electronics to diversify risks.

Companies with high duty-free channel proportions will face revenue decline pressure, requiring accelerated expansion into domestic taxed markets (such as convenience stores and e-commerce platforms) or overseas duty-free shops (such as Hong Kong and Singapore). For example, Winhope Technology's (300457) subsidiary Skor's e-cigarette business in Europe and Americas may benefit from overseas channel expansion.

The policy may accelerate industry consolidation. Compliant leading companies such as SMOORE INTL and Jinjia Shares can further consolidate their market positions with technological and qualification advantages; some small and medium-sized enterprises may face elimination risks due to high compliance costs. Meanwhile, China Tobacco system companies such as Shaanxi Jinye may gain more market share due to policy preferences.