Japan Tobacco: Investor Day

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Key Highlights1

– JT aims to maximize the top-line and ROI in combustibles to invest in RRPs (with priority on heated tobacco)

– JT realizes “where the money is” – almost a decade after PMI

JT projects heated tobacco to reach 16% of the industry volume and 22% of the industry net revenue in 2035 (bigger than e-vapor & oral tobacco combined)

In this period [2022-35], JT expects heated tobacco to generate $33Bn additional revenue vs. $17Bn by the combustibles and $15Bn by e-vapor and oral tobacco combined (i.e. HTP to generate more than half of the additional industry revenue in the long-term)

– JT expects HnB to double from 2002 to 2008, while JT HnB volume to grow to >6x (leading to mid-teens SoS in key markets, including Japan and Italy)

– JT will invest ¥300+Bn ($2.2Bn) in RRPs in the 2023-25 period – two thirds of which will be on commercialization, mainly to support HnB geographical expansion and share gains

– RRP break-even in 2028; HnB unit revenue: 1.5x cigarettes, HnB unit gross margin: 1.6x cigarettes

Ploom X Update

– Significant improvement in consumer metrics (but, still only 9.3% share of HnB in Japan after 7 quarters of massive marketing investment)

– In 4 market (Japan, Italy, UK, Lithuania). 10 more markets by the end of 2023. 14 markets next year

Our take-away

No new revelation. The same story (i.e. what we have already heard during the FY22 and Q1 2023 earnings releases) is re-heated and served. As a laggard in transformation to RRPs, JT’s RRP volume growth (only 3% in Q1 2023) is especially disappointing. We will closely watch Ploom X’s performance in the expansion markets; however, Ploom X’s performance – so far – in Japan doesn’t offer much hope for quick share gains in the expansion markets.

References:

  1. https://www.jt.com/investors/results/forecast/index.html ↩︎

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