Philip Morris International Sees Brisk Sales of Smokeless Cigarettes, Expanding Valuation Appeal

Philip Morris International (PM), a global tobacco company, is experiencing brisk sales of its smokeless cigarettes, leading to an expansion of its valuation appeal.

Philip Morris International owns six brands, including the world’s No. 1 ‘Marlboro’, among the top 15 cigarette brands in global sales, and the electronic cigarette brand IQOS. As of last year, 63.5% of sales came from conventional cigarette products, and the global conventional cigarette market share in the second quarter was approximately 23.6%. The company continues to invest in smokeless tobacco, such as by acquiring Swedish Match in 2022.

Lee Kyung-shin, a researcher at IM Securities, stated, “Amid the growing smokeless cigarette and nicotine markets, we expect additional external expansion due to Philip Morris’s IQOS penetration into the US market and improved ZYN production capacity.” Philip Morris plans to resume sales of existing IQOS products in the US market once the patent dispute is resolved. In addition, if the FDA approves the sale of the new IQOS and reduced exposure marketing in the future, it is analyzed that the IQOS ILUMA product will be able to enter the US market.

As the harm caused by illegal products increases the need for legal products to be supplied to the market, Philip Morris’ expansion into the US market after 2025 is expected to continue to lead to external growth that will exceed the decline in volume of regular cigarettes.

Above all, in addition to the existing pricing strategy for regular cigarettes, the operating profit in 2024 is expected to show double-digit growth due to brisk sales of smokeless cigarettes. Although the Russo-Ukrainian War and supply chain issues in 2022~2023, as well as the reflection of the initial cost of IQOS ILUMA, had a negative impact on profits, it is judged that the company has entered a period of stable profit upward growth due to the price effect of regular cigarette products and increased sales of nicotine pouches, which have a higher margin than regular cigarettes.

Philip Morris’ 12-month forward price-to-earnings ratio (PER) is 18.4 times, forming a valuation that is 31% higher than other tobacco companies. This is because the impact of U.S. regulatory risks is low, new growth engines such as e-cigarettes, nicotine pouches, and Vapor are secured, and shareholder-friendly policies such as raising the second-quarter dividend to $1.30 based on stable cash flow are being pursued.

Researcher Lee Gyeong-shin stated, “As interest in the defensive tobacco industry is increasing amid the economic slowdown, the potential for additional profit improvement and expansion of valuation premiums based on mid- to long-term growth momentum will be highlighted.”