This article was originally published on Tuesday, April 24, 2018 at 22:32 P.M. SGT.
Venture’s share price tumbled after news Philip Morris’ IQOS sales growth slowed in the first quarter, but that’s largely an over-reaction, UOB KayHian said in a note on Monday.
The stock ended Tuesday down 8.49 percent at S$23.40, totting up an around 19 percent tumble since Thursday’s closing price.
“At this price, it reflects a complete loss of IQOS earnings, although the outlook remains largely intact,” the note said. “In the worst case, we only expect the average selling price for IQOS to face a sharper than 5 percent year-on-year decline, but this could be offset by revenues from design services, which Venture continues to do so wholly for Philip Morris.”
Philip Morris’ results showed that IQOS, a device which heats but doesn’t burn tobacco, added only 3 percentage points to cigarette volumes, halving the growth rate of the previous quarter, Marketwatch reported last week. That was as sales growth in Japan slowed and the news sent Philip Morris shares down as much as 17 percent on the day.
UOB KayHian remained positive on Venture’s outlook.
“While IQOS makes up a significant chunk of revenue, it is important to note that growth is driven by a host of other products,” it said.
It also noted that IQOS’s first-quarter unit sales would require production levels similar to the second half of last year.
Additionally, the brokerage noted that while sales growth in Japan slowed, Philip Morris’ results showed IQOS’ share of market picked up in other markets, with cities in Slovakia, the Czech Republic and Ukraine showing a near doubling in share of market on a quarter-on-quarter comparison. South Korea has also shown strong sales growth, it noted.
Word is also awaited on whether IQOS would be approved by the FDA in the U.S., which would provide an order boost, the note said.
“All in all, the production outlook for Venture and IQOS remains largely intact, though the first half of 2018 could represent a soft patch,” it said.
The brokerage lowered its 2018 earnings forecast by 3 percent on expected seasonal weakness in the first half.
It trimmed its target price to S$30.60 from S$31.88, but kept a Buy call.
Venture’s earnings are due on Wednesday.