CITIC Securities: Growth expectations for the new tobacco industry are expected to improve in the second half of the year

CITIC Securities: Growth expectations for the new tobacco industry are expected to improve in the second half of the year

CITIC Securities believes that the global economy will face uncertainty in 2024, and the tobacco industry will exhibit rigid demand characteristics. In view of the frequent positive signals released by the US e-cigarette regulatory policy, Philip Morris International and British American Tobacco have also reached a patent settlement on HNB products, and the growth expectations of the new tobacco industry in the second half of the year are expected to improve.

On July 3, CITIC Securities released the report "Export Growth Turns Positive, U.S. Supervision Releases Positive Signal", which stated that according to data from the General Administration of Customs, China's e-cigarette exports in May 2024 were US$1.01 billion, and the year-on-year growth rate turned positive. The rebound in data is mainly due to the significant increase in export volume. Although the average export price has declined, it shows signs of stabilization compared with the obvious downward trend in the past two years.

In May, the value of e-cigarette exports to the United States +34.9% year-on-year to US$340 million, reflecting the strong demand for e-cigarettes in the US market; the value of exports to the United Kingdom -19.0% year-on-year to US$130 million, continuing the year-on-year downward trend, but the decline Narrowed compared with April, CITIC Securities judged that it was mainly driven by the launch of innovative products such as compliant large-capacity and screened e-cigarettes. In April 2025, the ban on disposable e-cigarettes in the UK will be officially implemented, and various brands will accelerate product form iteration.

Supervision has recently released positive signals. After the US menthol flavored products passed the PMTA for the first time, Australia's e-cigarette ban has been gradually relaxed. CITIC Securities believes that the rampant illegal market will force government departments to re-examine the regulatory attitude, which is expected to benefit the sales of legally operated e-cigarette brands.

Regarding heat-not-burn (HNB), CITIC Securities analysis believes that from the perspective of market demand, import data shows that demand in Japan and Germany, the core markets of heat-not-burn (HNB), has maintained rapid growth. Japan's HNB import volume in April 2024 increased by 51.8% year-on-year. , Germany's HNB import volume in March 2024 was +132.1% year-on-year. At the same time, China's HNB export performance has been positive, with export value and average price from April to May 2024 +2.9%/+33.8% year-on-year respectively.

From a corporate perspective, leading companies have successively strengthened HNB market expansion. Philip Morris International has boosted market investment in Ukraine and Egypt through product promotion, production capacity expansion and share mergers and acquisitions. Japan Tobacco International has increased the scale of HNB investment and entered the Middle East and African markets.

From a regulatory perspective, supervision in the EU and parts of Southeast Asia has been strengthened. Poland has promoted the regulatory process of banning the sale of flavored heated tobacco in response to the EU directive (the EU prohibits the introduction of flavored heated tobacco products); Vietnam is about to strengthen the supervision of e-cigarettes and heated tobacco.

In the future, it is expected that with the growth of core market demand and the expansion of high-potential markets, the scale of the HNB industry will further increase.

Macroeconomic pressure has led to weak consumer demand for tobacco products; major changes in tobacco-related policies and regulations; VUSE alto menthol flavor failed to pass PMTA; the substitution of disruptive atomization technology paths; and the supervision of illegal products is less than expected.

The global economy will face uncertainty in 2024, and the tobacco industry will exhibit rigid demand characteristics. In view of the frequent positive signals released by the US e-cigarette regulatory policy, Philip Morris International and British American Tobacco have also reached a patent settlement on HNB products, and the growth expectations of the new tobacco industry in the second half of the year are expected to improve.