“Recall in Jun 18, PMI had slashed prices for its IQOS kits by 30% to 7,980 yen/unit, which could have helped sales,” says analyst Foo Zhi Wei in a Tuesday report.
While Foo notes a decline in share of market (SoM) in Japan, he believes the slowdown could have been offset by a slight sales increase in South Korea as well as a pick-up in European countries Italy, Greece and Russia, which saw their SoM grow by 0.4-3.1 percentage points versus 1Q18 figures.
Another key takeaway from PMI’s investor figures is a shift in the company’s net revenue growth guidance which has shifted lower to about 3% from 3-4% previously.
Foo notes that IQOS devices have been guided to account for 20% of revenue replacement program (RRP) revenue, which he considers low as historical figures have trended at 22-25% of RRP net revenues in 2016-2017.
Nonetheless, the analyst believes the 3Q18 pick-up in IQOS sales volume points to an encouraging 2019 for Venture Corp, the manufacturer, as it could spur replacement demand and translate to higher next-generation IQOS device production volumes – namely IQOS 3 and IQOS 3 Multi – in the following year.
He estimates that greater clarity on this is likely to emerge closer to end-2018.
“Taking an assumption for inventory allowance, it is highly likely that average monthly production [of IQOS devices] in 2017 was well over 1 million units/month. Venture was the sole producer in 2017; FLEX’s [Venture Corp’s competitor] inventories only reached market in 1Q18 based on our channel checks,” observes Foo.
“Upside risk could stem from a higher-than-expected production schedule for IQOS 3 in 2019, which will significantly lift [Venture Corp’s] earnings,” he adds.
As at 10:17am, share in Venture Corp are trading 14 cents lower at $18.38 or 2.18 times FY18F book value.
