Japan Tobacco: Q3 2023 Results

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Top-line & Bottom-line Results1

Adjusted, at constant currencies; Tobacco only – excluding Pharmaceuticals & Processed Food

Revenue: +4.7% driven by positive price/mix variance and volume growth in the EMA cluster, more than offsetting the industry volume contractions in the Philippines (-11.5%) and the UK (-16.4%)

Operating profit: +7.9% strong price/mix improvement more than offsetting higher investments, partly related to the geographical expansion of Ploom X, and higher supply chain costs

Total Volume: +1.5% (combustible volume +1.2%; RRP volume +17.1%)

RRP weight: 1.6% by volume, 3.4% by revenue

Ploom X (heated tobacco) Update

– RRP is ~37% of total tobacco industry volume in Japan and Ploom X reaches 10.5% SoS

– “Ploom X Advanced” launch in Japan to further attract and retain users. For further details, see “Heated Tobacco Products”

– Geographical expansion plan for 2023 is on track: to be available in 28 markets by the end of 2024

FY23 Forecast

At constant FX, revenue forecast is revised up +2.4% (thereby, +5.6% growth vs. FY22) and operating profit forecast is revised up +4.7% (thereby, +5.0% growth vs. FY22). Basic EPS is revised up +1.5% (year-on-year growth: +4.8%). Based on the share price at the time of writing (¥3,662), JT trades at 14x 2023EPS (the third best multiple among the industry majors, after ITC and PMI).

Our Recollection

Overall, combustible volume held up well (+2.1% Year-to-Date 2023) and pricing/mix improvements helped deliver mid-single digit revenue & operating profit increase in YTD23. Thanks to the geographical expansion of Ploom X and category share gain in Japan, RRP volume increased 17% in Q3 2023 (versus only 3% in Q1 2023). We will continue to closely watch Ploom X’s performance in the expansion markets.

In the “League of Laggards” to the transformation to RRPs (Altria, Imperial, JT), we clearly favor JT due its size/scale, higher emerging market exposure (supporting the combustible volume), very low indebtedness and strong focus on expanding its presence in the heated tobacco category.

References:

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

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