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1、ABGlobal Research23 May 2019EquitiesGlobal TobaccoTobaccoGlobalCore growth is at an inflection pointIs the combustible business broken?With all the focus on next generation products (NGPs), why are we talking about the combustible business? First, by this point of the year, cigarette price increases
2、 have been mostly achieved and there is clarity over tobacco tax plans; we see upside to expectations for this core cash generator. Second, the simultaneous weakness in combustible volume and NGP growth has led the market to a) attribute the weakness to NGPs (notably in the US), and b) see NGPs as a
3、n escape from structural decline rather than an additive opportunity. By changing the terms of that relationship, we continue to view a recovery in the growth of the core business as key to relative valuations (in addition to the main driver of earnings and cash).Cash generator set to return to grow
4、thWhile NGPs take up most of the discussions with investors, cash flows depend on the combustible business. The current legislative environment implies that the excise tax headwinds that drove volume declines and downtrading over 2013 to 1H18 will remain relatively benign. Based on our bottom-up mod
5、elling, this implies volume declines of2%; above the -3% five-year average and better than company guidance (2.5%- 3%). This supports 4-5% organic industry growth.A global model bringing together the insight of six UBS staples teamsOur view is underpinned by a country by country view of the top 40 t
6、obacco markets, bringing together the insight of nine analysts across six markets. This is built on the 50- country analysis of historical tax and regulatory structures in our primer (A critical time for Tobacco), and developed further in our PMI upgrade. In this note we go into detail on the US (in
7、cluding regulatory outlook), Indonesia, Japan, South Korea, India and Malaysia.We are constructive on the sector. Buy: PMI, BAT, ITC, HMSP, GG, and JTBased on the relationship between industry volumes and the tobacco sector relative valuation, our volume expectations imply approximately 20% upside t
8、o the current discount to staples. Supported by this outlook and (largely) improving execution in NGP portfolios, we see upside in BAT, PMI, and Japan Tobacco. Furthermore, volume declines are not a feature of all markets; recoveries in the volume outlook driving the upside for ITC (India, APAC Key
9、Call), HM Sampoerna (Indonesia), and Gudang Garam (Indonesia).Figure 1: UBS Global Tobacco coverage (investment case for each inside)Nik Oliver, ACAAnalyst +44-20-7568 4982Robert RamptonAnalyst +44-20-7568 2014Satsuki KawasakiAnalyst +81-3-5208 6265Sunita SachdevAnalyst +91-22-6155 6062Permada Darmo
10、noAnalyst +65-6495 3137Jennifer HanAnalyst +82-2-3702 8802Nicole GohAnalyst +603-2781 1133Robert Krankowski Associate Analyst +44-20-7568 1152Jihyun Lee Associate Analyst +82-2-3702 8810Calendarised to DecTobaccoM.Cap (m)PricePerf.YTDYTD ()UBSRatingTarget price12 monthUpsideP/E2019E 2020EEV/EBITDA20
11、19E 2020EEquity FCF2019E 2020EDividend Yield2019E 2020EBritish American Tobacco77,8252,982 p19.3%22.0%Buy4,000 p34.2%9.38.88.68.112.5%12.0%7.3%7.4%Japan Tobacco41,585JPY 2,555-2.4%0.4%BuyJPY 3,40033.1%11.711.27.67.46.6%6.3%6.1%6.3%Philip Morris International119,359$ 85.7628.5%31.9%Buy$ 101.0017.8%16
12、.615.713.512.86.0%6.1%5.5%5.6%Imperial Brands23,2722,144 p-9.8%-7.8%Neutral2,400 p12.0%7.67.57.77.612.7%12.8%9.9%10.7%HM Sampoerna23,559IDR 3,270-11.9%-9.6%BuyIDR 4,50037.6%27.624.719.817.90.3%3.0%3.6%4.0%ITC47,403INR 3057.9%10.9%BuyINR 37522.8%26.523.418.316.12.8%3.4%2.3%2.6%Gudang Garam9,459IDR 79
13、,375-5.1%-2.6%BuyIDR 95,00019.7%16.414.811.110.23.3%2.6%3.9%4.3%BAT (Malaysia)2,046MYR 33-7.3%-6.1%NeutralMYR 3813.6%19.017.514.513.45.0%5.4%5.2%5.6%KT&G9,815KRW 103,5002.0%-2.3%NeutralKRW 105,0001.4%12.911.86.35.74.6%5.9%4.1%4.1%Altria87,076$ 51.875.0%7.9%Neutral$ 52.000.3%12.511.98.38.38.2%8.4%6.3
14、%6.6%Global Tobacco*441,39914.2%19.6%15.114.111.410.77.3%7.4%5.7%6.0%Global Staples3,273,21520.4%5.7%22.821.015.514.44.4%5.0%2.8%3.0%Source: UBS estimates. Global Staples under UBS coverage. *Weighted by market cap. Priced to 21 May report has been prepared by UBS AG London Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN
