Venture Corporation - CGS-CIMB Research 2019-05-02: IQOS Approved For Sale In The US


Venture Corporation - IQOS Approved For Sale In The US

  • The FDA has approved IQOS 2.4 for sale in the US.
  • IQOS will go on sale in summer, starting with Atlanta.
  • We project minimal earnings impact for now.

IQOS approved for sale in the US

  • The US Food and Drug Administration (FDA) on 30 Apr 2019 authorised IQOS for sale in the United States.
  • There are some 40m smokers in the US. In two years, 7.3m people around the world have abandoned cigarettes and switched completely to IQOS.
  • IQOS in the US will be sold by Philip Morris USA (subsidiary of Altria Inc) via an exclusive licence.
  • Altria plans to introduce IQOS in Atlanta this summer. There, Altria will open an IQOS store and numerous mobile stores. Heatsticks, Marlboro-branded tobacco sticks that are used with the IQOS device, will be available in about 500 retail stores, including Circle K, Murphy USA, QuikTrip, RaceTrac, Speedway and other retailers.
  • According to management, Altria will take insights from Atlanta and scale IQOS quickly and efficiently.

More impactful in FY20

  • The FDA has placed stringent marketing restrictions on the products in an effort to prevent youth access and exposure. Hence, the organisation has said that advertising and marketing plans must be submitted for review. Also, Juul currently commands the dominant market share even though its products are different from that of Philip Morris.
  • As Altria is selling the legacy IQOS 2.4 in the US and has been preparing for this launch, we believe that the company should have stocked up in anticipation of the FDA approval.
  • Given the restrictions placed on marketing and the time needed to win over customers, we believe any meaningful impact on VENTURE CORPORATION LIMITED (SGX:V03)’s financials may come in FY20. Of course, if reception is better than expected, contribution may be possible in 4Q19. Such contributions assume that Venture remains involved in the IQOS 2.4 product.

Share price could trade up today

  • Given that Venture's share price declined post its 1Q19 results release as investors digested the near-term volatility guidance, we believe Venture's share price could rebound on this positive news.
  • Our fundamental call remains HOLD. Our target price is also unchanged, still based on 12.5x P/E (0.5 s.d. below the 12-year forward average P/E of 15.4x).

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-02
SGX Stock Analyst Report HOLD MAINTAIN HOLD 17.880 SAME 17.880