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Next Generation Product Report:Let’s Begin With The Popularity of Heated Tobacco Product

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Next Generation Product Report:Let’s Begin With The Popularity of Heated Tobacco Product

  • 2018-11-16

Speaking of next generation product,one can never ignore the development of heated tobacco product,especially BAT in 2016,when it made its debut in Japan,it got so popular that the market share grew from 0.8% to 15% in 2018,very incredible,isn’t it?It is expected that demand for heated tobacco product will explode in the future.

A summary of our views:

The popularity of heated tobacco device at present is not the same as electric cigarette in 2013.the past years have witnessed the geometrical increase of the shipment of heated tobacco product.We think that the development of heated tobacco device will force change in traditional tobacco industry,the Japanese market has witnessed the geometrical growth of heated tobacco product,so if traditional tobacco industry does not seek change,it will suffer from the impact of next generation product.

Investment opportunities on relevant industrial chain

Xiamen Intretech.Inc.(002925 SZ)which was listed in Shenzhen Stock Exchange in 2018,has already established all-round,deep-level strategic cooperation ,it reported a 100% growth of profit in 2017,about 1 billion.its prospectus revealed the rapid growth of electric cigarette business in the past years.It is expected that electric cigarette concept stocks including Anhui Genuine paper packing co.Ltd(603429.SH),Jinjia Group(002191.SZ)and Shantou Dongfneg Printing Co.Ltd(601515,SH),which were specialized in packaging cigarette and will benefit from reform devidends in the future.While in international capital market,big companies such as BAT(AMEX:BTI) have also invested in developing heated tobacco device.

Electric cigarettes are generally divided into two types:vapour and heated tobacco product,the difference between them is whether it use tobacco stick.It’s considered that next generation product represented by heated tobacco device can reduce the harm to human health,and leaves no ash,tar or second-hand smoke,that is ecological-friendly,gaining itself advantages over traditional tobacco.

From the perspective of the entire industry,the market capacity of global electric cigarette is about 7.1 billion in 2017,it is expected to increase to 45 billion by 2024.The principal market is in Europe and America at present,US,UK,Italy makes up 62.8% of the consumption of electric cigarette.It is reported that the four biggest companies make up 77.6% of the sales,traditional big companies expanded market by merging,acquisition and its advantage in capital,brand and channel,it features the characteristic of an oligopoly market in the long term.In terms of categories,heated tobacco product is closer to traditional tobacco flavor and can significantly reduce harmful chemicals.a compound annual growth rate of 50% in five years is expected,and the market share will also rise from 22.8% to 34.1%.

If you analyze the factors that will affect the industry in the future,the favorable factors are listed as below:

1.Industrial innovation of technology will make the product meet the demand of consumers

2.The importance people attached to their health along with the improvement in living standards and the governmental regulations on tobacco shall hopefully accelerate the replacement of traditional tobacco by heated tobacco product.

3.Potential price-raising and tax-raising in this industry will highlight the advantage of heated tobacco product in the aspect of economic benefit.

The unfavorable factors are listed as below:

1.Uncertainties in policies,there is no consensus among countries on the regulation of electric cigarette,which confined the development of this industry to a certain extent.

2.Traditional tobacco industry is an important source of taxation,making up 6%-7% of national financial revenue,and the gross profit is about 70%,whether electric cigarette can fill the gap on taxation and profit after replacing traditional cigarette remains to be seen.

Generally speaking,heated tobacco product gained itself many inherent advantages over traditional cigarette,a smoke-free future is the tendency.

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