Big tobacco company Philip Morris, one of the giants operating in Japan’s heat-not-burn market, is currently in the best position in the Japanese HNB market if newly proposed changes to tobacco taxation are to take effect in the country, this in comparison to its competitors, which includes companies such as Japan Tobacco International and British American Tobacco — all of which have a stake in the country’s HNB market.
As of present, Philip Morris maintains its lead in the market, which is perhaps not all that surprising to onlookers aware of which company was the first to enter the island nation’s market with a HNB product: Philip Morris, which introduced its iQOS before it competitors launched their own competing products.
According to Bonnie Herzog, an analyst with Wells Fargo, the Wells Fargo company believes that Philip Morris is the best position between its primary competitors in the country’s HNB market as its competitors, Japan Tobacco and British American Tobacco both have more to lose if newly proposed plans for taxing the HNB market become reality. Herzog was quoted by Street Insider as having explained that iQOS currently has a tax advantage of ~20 percent in the country, whereas BAT and JT both enjoy significantly higher tax advantages – to the tune of approximately 40 percent and 84 percent respectively. Subsequently, if the newly proposed HNB tax becomes law, PM will lose the least. And currently, it maintains the dominant position as the country’s leading HNB product manufacturer.
“Given that iQOS’ current tax advantage is ~20% in Japan (per mgmt.) relative to BAT & JT who we understand enjoy even greater tax advantages (around 40% and 84% tax benefit, respectively), we believe PM is best positioned on a relative basis as we believe BAT/JT stand to lose more”
In Japan, current regulations have resulted in what is tantamount to a ban on electronic cigarettes. Subsequently, the current regulations have given way to the rise of smoke-free alternatives such as HNB products, which heat tobacco instead of burning it. While scientists continue to research the health implications of heat-not-burn and similar products, many believe them to be less harmful than their conventional cigarette counterparts.
The proposed HNB taxes will reportedly increase taxes on such devices to 80 percent of those currently levied on traditional cigarettes in the country. While Philip Morris, based on Wells Fargo’s analysis, appears be in the best position between its competitors, by some accounts, the newly proposed HNB taxes could hamper the industry’s growth in the country.
Cigarette sales in Japan are falling, according to the latest data. Meanwhile, HNB product sales are on the rise in the East Asian country of over 120 million inhabitants.
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