Weekly observation of new tobacco industry: Altria’s profit increased steadily in 2021, and the development of new tobacco business was hindered

Weekly focus: Altria announced its performance in 2021, with a slight decline in net income, adjusted diluted EPS increased by 5.7% year-on-year, and traditional tobacco has strong strength and steady profit growth. In 2021, the company’s net income was US $26.013 billion, with a slight year-on-year decrease of 0.5%. The decline in net income was mainly affected by the slight decline in the shipment of combustible tobacco, and the income from financial services and smoking increased year-on-year. In 2021, the diluted EPS of the group was US $1.34/share, with a year-on-year decrease of 44.2%. After adjustment, the diluted EPS was US $4.34 US $61 / share, a year-on-year increase of 5.7%. In the fourth quarter of 2021, the group’s net income was US $6.255 billion, a year-on-year decrease of 0.8%, diluted EPS was US $0.88/share, a year-on-year decrease of 14.6%, and adjusted diluted EPS was US $1.09/share, a year-on-year increase of 10.1%.

Altria new tobacco business: 1) cigarette in mouth: the sales of new nicotine bags are rapid and large-scale. In 2021, the market share of the group’s oral cigarette in the United States decreased slightly to 47.8%, and the sales volume of its largest oral cigarette brand, Copenhagen, declined, with a market share of 28.6% (- 2.6pcts) in 21q4, mainly due to the rapid increase in the demand for nicotine bags, a new category of oral cigarette, and driving the brand on! The market share increased rapidly, reaching 3.9% (+ 2.8pcts) in 21q4. By the end of 2021, on! It has entered 117000 U.S. retail stores. 2) HNB: affected by the ITC ban, it will be difficult for iqos devices and Marlboro smoke bombs to return to the U.S. market in 2022. 3) Steam electronic cigarette: 21q4juul’s share in the United States fell to 28%, and the PMTA trial is still ongoing. 21q4 sold 520 million standard units of steam electronic cigarettes, with a year-on-year increase of 12%. In 2021, it sold about 2.1 billion standard units, with a year-on-year increase of 17%. Since 2019, due to the impact of policies and negative news, Juul’s market share in the United States has continued to decline, with a market share of 30% in 2021 and only 28% in 21q4. The PMTA application for equipment and four cigarette bombs submitted by Juul in July 2020 is still under review. In 2021, more than 90% of American e-cigarettes were issued MDO by FDA, and three products of VUSE, the second largest e-cigarette brand, were awarded PMTA in October 21. Under strict supervision, the competition of leading brands in the American market is still fierce.

The sales of traditional tobacco in the U.S. market declined and emerging tobacco rose rapidly. According to avistrategy, the sales volume of tobacco in the United States in 2021 was about 15.7 billion standard units (yoy-1.3%), including 11.8 billion standard units (yoy-4.8%) of combustible tobacco in 2021 and cagr-3% in 2016-2021, accounting for 75% in 2021 from 85% in 2016; The sales volume of new-type tobacco was 3.8 billion standard units (yoy8.6%), CAGR was 8% from 2016 to 2021, and the proportion of new-type tobacco sales increased from 16% in 2016 to 24% in 2021. Among the new-type tobacco, the sales volume of steam electronic cigarette was 2 billion standard units, double that of 2016, and the sales of oral cigarette was 180 million standard units.

Altria’s adjusted diluted EPS is expected to increase by 4-7% year-on-year in 2022. According to the company’s 2022 performance guidelines, combined with the company’s increased investment in improving the online consumer participation system, strengthening the research and development of smokeless products and the marketing of smokeless products, as well as the growth of MSA agreement costs and the rise of raw material prices, it is expected that the adjusted diluted EPS in 2022 will be $4.79-4.93/share, with a year-on-year increase of 4-7%, and the growth rate in the second half of the year is better than that in the first half of the year, The annual capital expenditure is expected to reach US $200-250 million and the depreciation and amortization fee is US $210 million.

Investment suggestion: China’s e-cigarette policy of 21q4 is accelerated. The short-term market has experienced a period of policy running in. In the long run, with the normalization of supervision, the industry has entered a healthy and orderly development. The upstream head OEM enterprises will benefit from the industry integration promoted by the policy. They are optimistic that the leading enterprises in the industrial chain with technology and customer accumulation will further improve the market share and profitability, At the same time, enterprises in all links of the industrial chain focusing on export business are relatively weak under the influence of Chinese policies, and the market development space is broad. The global demand for new-type tobacco continues to grow. We are concerned about the development of policies related to new-type tobacco at home and abroad. It is suggested to pay attention to smore International (6969. HK), Shenzhen Jinjia Group Co.Ltd(002191) (002191. SZ), Anhui Genuine New Materials Co.Ltd(603429) (603429. SH).

Risk warning: industry regulatory policies exceed expectations; The market demand is less than expected; Intensified market competition; Technical iteration and update; Price fluctuation of raw materials; Repeated outbreaks outside China have impacted channel sales; Macroeconomic pressure.

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