See our complete analysis of Philip Morris International

Asian smokers lift volumes

A major part of the market's volume growth will come from emerging Asian countries, including China, Indonesia and Philippines. The industry volume in Indonesia (25% of Asian market) has been growing at a compounded 3% to 4% annual growth rate, along with the Philippines (10% of Asian market), expanding at 2%. In Europe, cigarette sales are expected to stabilize in the traditionally strong tobacco markets like Italy and France over the next few years with a flat to 1% compounded growth rate.

Among its international markets, PMI expects to gain significant market share in Japan, Indonesia, Philippines, South Korea and Vietnam. In Japan, it hopes to end 2011 with a share of about 28.5%, expecting good retention levels in the aftermath of competitor supply disruptions caused by the earthquake and tsunami in Japan.

Its merger with Fortune Tobacco in the Philippines gave PMI a 90% market share. Its Korean shipment volumes grew by 100% between 2006 and 2010 with a doubling of market share to 17% in 2010. With a 30% market share in Indonesia and its recent tie-up with Vietnam National Tobacco Corporation (Vinataba), a large part of PMI's market share expansion will surely come from Asia.

Health consciousness in developed markets slow demand

Cigarette market volume has been declining in almost all the major developed markets amid growing awareness of smoking's health risks. Also, almost all state and local governments tax tobacco products heavily (50% in Asia to 70% in Europe) for revenue and public health purposes, which will continue to increase cigarette prices and discourage cigarette smoking.

Proposed and existing legislation, such as bans on smoking in public places and packaging requirements for tobacco products, are also likely to hurt cigarette sales.

We have a revised $75 price estimate for Philip Morris International, 10% ahead of the market price.