UOB KH: Venture won’t benefit from FDA’s IQOS approval until 2020

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Any benefit to Venture Corp. from the U.S. Food and Drug Administration’s (FDA) approval of Philip Morris’ IQOS heated tobacco device likely won’t show up at the bottom line until 2020, UOB KayHian said in a note last week.

“As one of the iQOS device manufacturers, Venture could benefit from more demand for the device,” UOB KayHian said. “However, we think the impact on Venture Corp.’s 2019 earnings could be muted as iQOS sales could initially be drawn from old inventories and the device could have been built by Venture earlier.”

The brokerage said it assumes Venture will manufacture 12 million IQOS devices in 2020, with every additional 1 million devices boosting the contract manufacturer’s 2020 net profit by S$7.3 million, which is equivalent to 1.8 percent of UOB KayHian’s 2020 net profit forecast.

UOB KayHian estimated Venture sold around 12 million IQOS devices in 2018.

The brokerage also had some caution about competition in the U.S. market.

“Despite the huge addressable market, we note that Juul, a vaporised e-cigarette, has already started selling in the U.S. since 2015 and commanded more than 70 percent market share as of 2018,” the note said.

UOB KayHian kept a Hold call on the stock, citing the potential for some near-term price volatility and its forecast that second quarter performance will be weaker on-year. It added it expected an improvement in the second half of this year on new product launches.

It kept its target price of S$19.01 unchanged, and set an entry price of S$17.00.

The stock closed Friday at S$17.28, down 0.69 percent.

Venture does not typically name its clients. But analysts, including at Credit Suisse, KGI, CGS-CIMB and UOB KayHian, widely believe Venture is a manufacturer for Philip Morris’s IQOS smokeless tobacco device.

Philip Morris describes IQOS as a hybrid between “analog” and e-cigarettes.


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