Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.

Philip Morris Relies on Asia for Growth But One Region Is Out of Reach

One of Philip Morris' (NYSE: PM  ) cash cows is its Asian operations.

During 2013, Asia accounted for 34.2% of Philip Morris' revenue. On a stick basis, it shipped about 301 billion cigarettes to Asia during the year, out of a total of 880 billion sticks sold by Philip Morris globally during the period.

However, this presence has not gone unnoticed and the Southeast Asia Tobacco Control Alliance, or SEATCA, wants to rein in Philip Morris' regional presence.

Dominant presence
The organization claims that Philip Morris is targeting low-income families within Asia, or to quote SEATCA director Bungon Ritthiphakdee :

The bulk of the smokers in Asia are people with low income so the revenue earnings are from selling an addictive and hazardous product to poor people,

According to SEATCA, Philip Morris spent $7 billion on marketing during 2012. In comparison, Asian regional governments spend a minuscule amount to stop the spread and prevalence of smoking. People in the area also lack information about the health risks and dangers of smoking.

Collectively, Indonesia, Philippines, Thailand, and Vietnam have more than 110 million smokers. This is a huge market for Philip Morris, and one the company intends to exploit.

Actually, these markets are some of the only markets in the world where the volume of cigarettes consumed is still rising.

Looking to expand
Philip Morris expects that during 2014 Indonesia will see cigarette industry volume grow by up to 1% in 2014. However, the company is losing out due to declining sales of Hand-Rolled Kretek ("SKT") product. Year-on-year, at the end of the first quarter, Philip Morris' market share in the region had fallen by 1.6%.

Over in the Philippines, Philip Morris is waging a war with domestic producer Mighty Corp. The company's market share increased quarter-on-quarter to 83.7% at the end of the first quarter from 72.3% at the end of the fourth quarter . You can read more about Philip Morris' war with Mighty here -- the article details further why the Philippines tobacco market is key to Philip Morris' growth.

Nevertheless, one region where Philip Morris cannot profit is China, as the market is still controlled by the government-controlled Chinese National Tobacco company.

Out of reach
China is easily the world's largest cigarette market and one that continues to expand. It is estimated that around 2.5 trillion cigarettes were sold within China during 2013; this is around 40% of the total volume of cigarettes sold worldwide.

Philip Morris does have an agreement with China National Tobacco, which produces Philip Morris' Marlboro cigarettes under license. Philip Morris sold 2 billion units through this channel during 2012, although this is nowhere near the market's full potential.

A way to play it
The Chinese tobacco market is not totally out of reach for investors, however. Universal Corp (NYSE: UVV  ) is a leading supplier of tobacco to tobacco companies worldwide .

The company is sort of a middleman for tobacco growers, farmers, and buyers. The company counts some of the world's largest tobacco companies as its clients. Universal's largest client is Philip Morris as the company controls around 16% of the global tobacco market. Universal's third largest client is China National Tobacco Corp.

Universal is a great way for investors to buy into the Chinese domestic tobacco market. Universal has been around since 1918 and it has built a reputation of reliability with customers and suppliers alike. What's more, Universal currently supports an attractive dividend yield of 3.8%.

Foolish summary
Asia is a huge market for Philip Morris and the company is benefiting from the rising number of smokers within the region. Unfortunately, China remains out of reach for the company and indeed many private investors.

But never fear, one way to play the huge Chinese tobacco market is through Universal, which supplies tobacco to China's state tobacco company.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2993348, ~/Articles/ArticleHandler.aspx, 3/27/2015 9:49:10 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!