Thu, Jan 03, 2019 - Page 10 News List

World’s largest cigarette maker plans market debut

STATE GIANT:China National Tobacco’s international business, which is to be listed in Hong Kong, posted revenue of US$651 million in the first nine months of last year

Bloomberg

China National Tobacco Corp (中國菸草公司), a state monopoly that is by far the biggest cigarette maker in the world, plans to list its international unit on the Hong Kong Stock Exchange even as pressure increases on the Chinese government to curb smoking.

The unit, China Tobacco International Inc, is primarily responsible for procuring overseas tobacco leaf from countries like Brazil and Canada for the cigarette giant, which churns out four of every 10 sticks made in the world.

The parent company might clock more profit than either HSBC Holdings PLC or Walmart Inc, according to a rare glimpse of financial data in 2012.

While the international unit accounts for a tiny portion of China Tobacco’s overall business, which has a bigger market share than the top five global tobacco companies combined, the listing represents a rare opening up of the state monopoly that is facing growing domestic concerns over China’s high rates of cancer and smoking-related disease.

China is the largest tobacco consuming and manufacturing country in the world, and critics contend that the government is not doing enough to prevent the spread of smoking because of the tax revenue it derives from the industry.

Last year, lawmakers in the Chinese National People’s Congress called for higher taxes on cigarettes to deter smoking among young people.

The international business to be floated recorded revenue of HK$5.1 billion (US$651 million) for the nine months ended in September last year, a 21 percent drop from a year earlier, according to prelisting documents issued yesterday.

It had a gross profit margin of 5.8 percent, down from 6.5 percent a year earlier.

The unit derives revenue primarily from a fixed markup of 6 percent it applies to the overseas tobacco leaf supply when selling to domestic cigarette manufacturers.

It also has full control of cigarette exports — sold primarily in duty-free locations overseas to Chinese tourists — and domestic-grown tobacco leaf from provinces including Yunnan and Sichuan.

In May last year, it started a business exporting Chinese-made heat-not-burn tobacco devices, the document said.

In 2016, the industry contributed profit and tax of 1.1 trillion yuan (US$160 billion), according to China Tobacco’s Web site.

The monopoly otherwise does not publish financial data voluntarily.

In 2012, a bank in which it was buying a stake released figures that showed the cigarette giant had sales of 770.4 billion yuan and net income of 117.7 billion yuan in 2010.

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