Guojin Securities: The opening of the domestic HNB industry may already be an opportunity for related supply chain layout

The Zhitong Finance App learned that Guojin Securities released a research report saying that based on the development experience of the overseas tobacco industry, the development of new types of tobacco is already the general trend. If domestic HNB is launched in the future, it is expected to support the further high-quality development of the tobacco system. It is recommended to actively pay attention to supply chain companies that currently have technology and product reserves in the field of heated tobacco, and are expected to fully enjoy the global HNB development trend in the future.

Guojin Securities's main views are as follows:

International tobacco giants are fully switching to new types of tobacco, and HNB is already an important growth driver for leading tobacco companies

The global cigarette market contraction is an irreversible trend. The global smoking rate continued to decline from 30.75% in 2005 to 21.74% in 2022, and the size of the cigarette market slowly declined from 5390.8 billion cigarettes in 2018 to 5156.1 billion in 2024, with a CAGR of -0.74%. In view of this, international tobacco giants, including Fimo International, use new types of tobacco as the core driving force to guarantee the company's long-term development, and accelerate deployment in fields such as vaping e-cigarettes, heated tobacco, and oral tobacco. For example, more than two-thirds of Pimo International's revenue by 2030 will come from new types of tobacco, and the British American Tobacco Plan will account for 50% of the revenue from new types of tobacco in 2035, and various tobacco giants will accelerate the transformation process from traditional tobacco giants to new types of tobacco. Among them, HNB is the core category of new types of tobacco. In 2024, Fimo's smoke-free products (mainly the HNB product IQOS) accounted for 39% of revenue, and heated tobacco has become the core engine driving the company's performance growth.

Referring to the development history of the Japanese market, the role of new types of tobacco in protecting tax benefits is outstanding

Since 2019, the penetration rate of heated tobacco in the Japanese market has increased rapidly. The size of the heated tobacco market has grown from 37.280 billion in 2019 to 64.496 billion in 2024, with a CAGR of 11.59%, and the penetration rate of heated tobacco increased from 23.54% in 2019 to 43.40% in 2024. Since 2018, the Japanese government began taxing HNB products, and the comprehensive tax rate is basically the same as traditional cigarettes. In 2024, Japan's national tobacco tax was 489.3 billion yen, up 4.76% from 467.1 billion yen in 2019. The cigarette market continues to shrink, and the tobacco tax that contributes to it is also expected to decline, while heated tobacco, which is rapidly increasing in penetration, is contributing most of the tax increase. It can be seen from this that in Japan, which has the highest penetration rate of heated tobacco in the world, the booming development of heated tobacco will not only not have an impact on tobacco taxes, but will instead promote a steady increase in overall tobacco tax revenue by encouraging consumers to switch to heated tobacco products.

The growth in the scale of traditional domestic cigarettes is gradually under pressure. The high-quality development of China Tobacco may follow the development path of overseas tobacco groups, and there is an urgent need for product innovation+overseas travel

In recent years, the increase in traditional cigarette consumption across the country has gradually come under pressure. In 2019-2024, the country's cigarette production slowly increased from 2364.2 billion to 24655.5 billion, with a CAGR of 0.84%, and cigarette sales increased from 2363.1 billion to 2450.7 billion, with a CAGR of 0.73%. Although cigarette production and sales have not declined, the growth rate has slowed significantly, and the difficulty of growth has increased significantly. Furthermore, from 2010 to 2024, the inventories of enterprises above the size of the national tobacco industry rose from 150 billion yuan to 439.4 billion yuan, and the overall inventory level is high. In this context, referring to the development path of overseas tobacco giants, it can be seen that accelerating product innovation, developing new types of tobacco+ overseas expansion may be the optimal solution to achieve high-quality development of the tobacco system while reducing harm to smokers.

The harm-reducing properties of heated tobacco are outstanding. The overseas regulatory framework is very clear, and samples of the Chinese tobacco system are available for reference

Currently, major and future potential consumers of heated tobacco, such as the United States, Japan, and Europe, have clarified core provisions such as product marketing processes, flavor boundaries, sales channels, and places of use, and the HNB industry's compliance roadmap has basically been clarified. Currently, there is no complete regulatory framework for HNB products in China, but as can be seen from changes in the HNB regulatory trend in overseas countries, the current product positioning and regulatory framework for HNB in major overseas consumer markets can fully explain the harm-mitigating properties of HNB, or can provide a certain reference value for domestic HNB regulation.

China Tobacco already has a certain product reserve in the HNB field, laying a solid foundation for the development of related domestic industries

Since 2017, a number of companies, including China Tobacco from Sichuan, China Tobacco from Yunnan, China Tobacco from Guangdong, China Tobacco from Shandong, etc., have successively launched domestic HNB cigarette sets and smoke bombs, using different heating techniques and providing various flavored cigarette combinations, mainly for the Southeast Asian market. Yunnan China Tobacco, Hubei China Tobacco Research Institute, and Hunan China Tobacco have obtained more than 50 invention patents in the field of heating and non-combustion, and their technical reserves are already quite rich. In particular, in terms of the most core heating technology, many companies have now independently developed different heating technology paths. China Tobacco currently has a first-generation product layout and technical reserves in the field of heated tobacco, and domestic HNB development has relatively complete supply chain support.

Risk Alerts

The domestic HNB development process fell short of expectations; heated tobacco products fell short of expectations; competition in the domestic new tobacco industry intensified.