Guotai Haitong Securities released a research report indicating that Heat-Not-Burn (HNB) product shipments are accelerating, while nicotine pouch sales growth has slowed, and vapor e-cigarette sales have reached a new record high. The global HNB industry is currently entering a new product lifecycle phase. With major brands actively engaging in market development, the industry's scale is expected to expand at a faster pace. The report recommends SMOORE INTL (06969) and CTIHK (06055), companies with competitive advantages in product technology and supply chain.
Key points from Guotai Haitong Securities are as follows:
HNB: Benefiting from advanced stocking in the Japanese market, shipment growth accelerated year-on-year in 2026 Q1. Philip Morris International's HNB shipment volume increased by 11% year-on-year (compared to +8% in 25Q4), while sell-through growth was +11% (compared to +12% in 2025 Q4). Excluding the impact of advanced stocking in Japan due to April's consumption tax increase (affecting approximately 500 million units), Q1 sell-through growth was +9% year-on-year. Regionally, Japan's sell-through grew +10% year-on-year (+6% excluding stocking effects), Europe grew +6% (+8% excluding the impact of flavor bans), and other regions grew +19%. Markets in South Korea, Malaysia, Indonesia, and Mexico showed strong growth, with the initial performance in the Taiwan, China market being particularly notable. IQOS launched in Taiwan, China in 2025 Q4 and has since become the company's most successful core market launch project to date: by March 2026, its terminal sell-through market share reached nearly 6%, capturing about 70% of the local HNB category sales.
Modern Oral Nicotine Pouches: Influenced by factors such as U.S. channel destocking and a high base period, shipments declined year-on-year and sell-through growth slowed. Philip Morris International's nicotine pouch volume in the U.S. decreased by 23% year-on-year in 2026 Q1 (compared to +20% in 2025 Q4), with sell-through growing +10% (compared to +23% in 25Q4). This was primarily due to a high base effect from promotions and downstream restocking in the same period of 2025, dynamic changes in the market and regulations, and the gradual normalization of channel inventory that was built up by the end of 2025 (25 million cans). Performance is expected to improve in the second half of the year with the launch of new ZYN products and a return to a normalized base period. In high-potential emerging markets, ZYN's terminal sell-through volume is estimated to have grown over 50%, continuing to gain share in this high-growth category, with strong performances in the UK, Pakistan, Poland, and Mexico. Sales declines in Nordic markets were mainly due to temporary factors.
Vapor E-Cigarettes: VEEV quarterly shipments set a new historical record. Philip Morris International's e-cigarette brand VEEV saw quarterly shipments exceed 1 billion equivalent units for the first time in 2026 Q1, with sell-through nearly doubling year-on-year. Growth was particularly strong in Italy, Romania, Germany, the UK, France, Spain, and Indonesia. According to Nielsen tracking data for terminal sales across 19 European countries, VEEV ranked joint first in market share for the closed pod e-cigarette category alongside its core competitor in 2025 Q4.
Competitive Landscape: HNB market share remains stable, while modern oral nicotine pouch share is pressured by premium pricing strategies. According to PMI's disclosed HNB market share data for Japan, the IQOS brand held market shares of 70%, 69%, and 69% in 2025 H1, 2025 H2, and 2026 Q1, respectively. Competitor 1 held shares of 15%, 17%, and 18%, while Competitor 2 held shares of 15%, 14%, and 12% for the same periods. The Japanese HNB market is relatively mature, and IQOS has maintained stable brand share despite industry pricing pressures. In the modern oral nicotine pouch segment, ZYN's premium pricing compared to competitors persists in the U.S. market, leading to increasingly fierce commercial competition on price. High pricing strategies in new markets, coupled with stronger product homogenization, are resulting in category share being squeezed.
Q2 Outlook: 1) Continued strong performance in international operations, with sequential improvement in growth. 2) HNB shipment volume expected to be 40-42 billion units (corresponding to low single-digit year-on-year growth). 3) IQOS sell-through growth expected to slow temporarily due to the short-term impact of Japan's consumption tax increase. 4) Cigarette shipment volume expected to decline by a low single-digit percentage.
Risk Warning: U.S. regulatory enforcement may be weaker than expected; new product market promotion may fall short of expectations.
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