27 July 2016 Asia Pacific/Japan Equity Research Tobacco (Personal Products (Japan)) / MARKET WEIGHT Tobacco industry Research Analysts COMMENT Masashi Mori 81 3 4550 9695
[email protected] Examining the state of Japan’s “heat-not-burn cigarette” market ■ Two products in focus: In Japan’s cigarette market, much of the focus at present is on two type of “heat-not-burn cigarette.” One is iQOS, from Philip Morris International (PMI). This product has made strong gains in market share since going on sale nationwide this April. The other product is Ploom TECH, launched on a trial basis by Japan Tobacco (JT, 2914) in March. For now, iQOS is garnering much of the attention, having launched before Ploom TECH. That said, both products are gaining in popularity and are constantly in short supply. Recognition is growing rapidly for this new genre known as heat-not-burn cigarettes, and we expect market penetration to accelerate. While it is too early to forecast the future for these products, we think they have the potential to become game-changers. In this report, we outline the situation at present. ■ PMI’s 2Q results: Announced on 19 July US time, PMI’s 2Q results served to underscore iQOS' growing popularity. In Japan, iQOS (HeatSticks) reached a national share 2.2% (2.7% in the final week of June), up from 0.8% in 1Q. As positives, PMI noted that (1) the device is now cannibalizing about 35% of the company's cigarette portfolio in Japan, down from around 40% as of September 2015; and (2) many smokers are "up-trading" to iQOS from cheaper brands.