China Tobacco looks to raise global profile via acquisitions

05 September 2019 - 04:04 pm UTC

by Dong Cao in Hong Kong

China Tobacco, the state-owned cigarette monopoly in China, is looking to raise its international profile via investments and acquisitions, two sources familiar with the situation said.

This comes amid Chinese government efforts to curb smoking in the world’s largest cigarette market over health concerns, whilst the domestic economy also slows down, the first source explained.

Its overseas trading subsidiary China Tobacco International HK is likely to be the international business expansion platform for China Tobacco, which completed an IPO in Hong Kong earlier this year, the sources noted.

The company has the ambition to grow its own leading brands and to compete with global transnational players such as Philip Morris International and British American Tobacco, they added.

Imperial Brands’ cigar business fails to impress the Chinese cigarette giant

China Tobacco has been reported as a potential suitor for British tobacco group Imperial Brands’ worldwide premium cigar business but has tepid interest in the deal, the sources said.

Sales of cigar products only account for less than 1% of China Tobacco’s total annual profit, the first source noted, adding that the company does not believe that the cigar business would have much growth potential.

The target cigar consumer market, especially in China, is very niche and small, he said. China tobacco consecutively recorded over CNY 1 trillion (USD 140bn) annual pre-tax profit in the past five years, as announced.

This news service also reported that Imperial Brands was expected to receive indicative bids for this asset by the end of July, which could fetch a valuation of GBP 1.2bn after the company fine-tuned its expectations.

Meanwhile, China Tobacco would also be wary of making such large-size buys offshore, which need support and approval from China state authorities, the sources added.

China Tobacco’s top priority for now is to consolidate the domestic market through acquisitions of assets or stakes in joint ventures across the industry that it does not own in China, the first source said.

A Financial Times report in April suggested that China exported cigarettes worth USD 722m in 2018, up from USD 248m a decade ago, with the majority heading to developing countries in Asia.

China Tobacco has set up subsidiaries in countries from Argentina to Namibia and the United Arab Emirates, as well as a Switzerland-based joint venture with Philip Morris International to distribute Chinese cigarette brands in Europe, according to the report.

China Tobacco and Imperial Brands did not reply to requests for comments.