SINOLINK SECURITIES·2025-12-25 02:56Investment Rating - The report suggests that the domestic HNB (Heated Not Burned) industry is on the verge of significant growth, driven by international tobacco giants shifting towards new tobacco products [5]. Core Insights - The global cigarette market is experiencing an irreversible decline, with smoking rates dropping from 30.75% in 2005 to 21.74% in 2022, and cigarette market size decreasing from 53,908 billion sticks in 2018 to an estimated 51,561 billion sticks in 2024, reflecting a CAGR of -0.74% [1][13]. - Major tobacco companies, including Philip Morris International (PMI), are focusing on new tobacco products as a core growth driver, with PMI planning for over two-thirds of its revenue to come from new tobacco products by 2030 [1][20]. - The Japanese market serves as a reference point, showing that the rapid penetration of heated tobacco products has not negatively impacted tax revenues, with the market size growing from 37.28 billion sticks in 2019 to 64.50 billion sticks in 2024, a CAGR of 11.59% [2][51]. Summary by Sections Section 1: HNB as a Core Development Category - International tobacco giants are increasingly focusing on new tobacco products as a long-term performance core, with significant contributions to profitability [1.1]. - The global market for heated tobacco and electronic cigarettes is projected to grow, with sales expected to reach $38.85 billion and $23.04 billion respectively by 2024, reflecting growth rates of 12.7% and 9.5% [1.1][13]. Section 2: Domestic Tobacco Industry Challenges - The traditional cigarette market in China is under pressure, with production increasing from 23,642 billion sticks in 2019 to 24,655 billion sticks in 2024, but at a slowing growth rate [3][55]. - The inventory levels in the tobacco industry have risen significantly, from 150 billion yuan in 2010 to approximately 4,394 billion yuan in 2024, indicating a high stock level [3][56]. Section 3: Regulatory Framework for HNB - The regulatory landscape for heated tobacco products is becoming clearer globally, with established frameworks in the US, Japan, and Europe, providing a roadmap for compliance [4][62]. - The US has implemented a structured regulatory process for HNB products, which includes pre-market tobacco application (PMTA) requirements, ensuring a predictable compliance environment [4][66]. Section 4: Domestic Product Development and Market Readiness - Chinese tobacco companies have made significant strides in developing HNB products, with several companies launching domestic HNB devices and achieving a substantial number of patents in the field [4][5]. - The report emphasizes the importance of product innovation and international expansion for the high-quality development of the domestic tobacco industry [3][5]. Section 5: Company Analysis - Companies like Huabao International and Smoore International are highlighted for their strong technical reserves and potential for growth in the HNB sector, with Huabao expected to benefit from its leading position in the flavoring segment [5][5.1][5.2].