Dongwu Securities: Leading the growth rate of new tobacco in the context of harm reduction, international tobacco giants increase their layout

The Zhitong Finance App learned that Dongwu Securities released a research report saying that the global tobacco industry is close to trillion US dollars. In the context of harm reduction, new types of tobacco lead the growth rate and will occupy more market share. International tobacco giants such as Fimo International and British American Tobacco have increased their layout for new types of tobacco, focusing on categories such as heating without burning, and promoting smoke-free transformation. It is recommended to focus on Smore International (06969), a leading atomizing electronics foundry bound to Glo Hilo, the new product Glo Hilo from British and American Tobacco HNB; Yingqu Technology (002925.SZ); and China Tobacco Hong Kong (06055), the only listing platform of China Tobacco that is expected to integrate overseas assets.

The views of Dongwu Securities are as follows:

Global tobacco: The scale of traditional cigarettes is stable, and new types of tobacco continue to grow. According to Euromonitor data, the world market size for various tobacco products is estimated to be US$951.4 billion in 2024, +2.6% year on year; of these, the size of cigarettes, cigars and other combustible tobacco/ new types of tobacco will be US$77756/888/87 billion, respectively, +1.6%/+1.9%/+13.1% compared to the same period last year. The scale of the new tobacco industry is estimated to be US$87 billion in 2024, of which e-cigarettes, heated tobacco, smokeless products, and oral tobacco will be US$230/389/138/11.2 billion, respectively, +9%/+13%/-0.1%/+51% compared to the same period last year. The scale of e-cigarettes is expanding steadily, the share of one-time use cases will decrease, and the market share of leading compliance companies is expected to increase. The scale of the heating and non-combustion industry is growing rapidly, and the US market will contribute a considerable increase. The total market share of the top two leaders is nearly 90%. Nicotine pouches drive a rapid increase in smoke content.

Fimo International: IQOS is growing steadily, and nicotine bags are being released quickly. 1) Fimo International is mainly in the tobacco business, and the share of smoke-free products continues to increase. In 2024, the company's revenue was US$37.9 billion, and organic was +9.8% YoY. Among them, combustible tobacco products/smokeless products accounted for 61%/38% of revenue, respectively, and organic +5.9%/+16.7% YoY. 2) The heated tobacco brand IQOS continues to grow. The core brand IQOS was released early and achieved technology and user cards. In 2024, the number of users reached 32.2 million, and sales volume of cigarettes reached 139.7 billion, +11.6% over the same period last year. The market share was 5.2%, and the market share increased to 5.7% in 2025Q1. The company expects heated tobacco revenue and sales to grow by 10%-12% in 2025. 3) Nicotine bag drives a rapid increase in cigarette content. In 2024, sales of tobacco in the mouth reached 1,022 million cans, up +27.8% year on year, including 640 million cans of nicotine bags, +52.9% year over year. As the only brand approved by the FDA, ZYN is rapidly expanding in the US. The company expects sales of nicotine bags to grow 38%-45% in 2025. 4) Actively promote smoke-free programs. Fimo lays out the e-cigarette business. The core brand VEEV has shipped 1.7 billion units in 2024, and shipments doubled in 2025Q1. Fimo expects sales of smoke-free products to increase by 12%-14% in 2025, and smoke-free products account for more than 2/3 of revenue in 2030.

British American Tobacco: Diversified layout of smoke-free businesses, new HNB products, etc. are expected to drive growth. 1) Tobacco burning contributes the main revenue, and diversifies the layout of smoke-free products. In 2024, the company's revenue was £25.867 billion, organic +1.3%, of which combustible tobacco/new tobacco/traditional oral tobacco revenue was £206.85/34.32/1,092 billion, and organic +0.1%/+8.9%/-3.4%. In 2024, smoke-free products (including traditional oral tobacco) accounted for 17.5% of revenue, +1.0pct. 2) Mainly vaping e-cigarettes, and the market share is expected to gradually recover. Of the 29.1 million new tobacco users, the revenue of vaping e-cigarettes, HNB/modern mouth cigarettes in 2024 was £17.21/9.21/790 million, or -2.5%/+5.8%/+53.2% compared to the same period last year for organic cigarettes. The volume of e-cigarettes has been reduced and increased, impacted by non-compliant products, and the share is expected to recover after European and American regulations are strengthened. 3) New products are expected to help increase HNB's share. Heating does not burn will sell 20.9 billion units in 2024, with organic sales of -0.3%. Glo Hilo will be launched in Japan in June '25, then expand the European market. It is expected to be launched in the US in 2026. The new products will help HNB grow rapidly. 4) Diversified products promote smoke-free transformation. Hyundai Mouth Tobacco uses Velo as its core brand, with revenue of £790 million in 2024, organic +53.2% year-on-year. New products and the new US market will support growth. British and American Tobacco is driving the smoke-free transition, and new HNB products will become an important support. It is estimated that smoke-free products (including traditional oral tobacco) will account for more than 20% /50% of revenue in 2026/2035.

Risk warning: Regulatory policies are uncertain, new product promotion falls short of expectations, market competition intensifies, etc.