Guotai Haitong: In the first half of the year, HNB overall performance was stable, and the new type of heated tobacco products made great strides in the American market.

Guotai Haitong released a research report stating that in the first half of the year, the overall performance of HNB was stable, benefiting from the launch of GloHilo, with Glo's market share in Sendai increasing by 1.5 percentage points (Week 5 data). It successfully established itself in the high-end market, with products more adapted to users compared to the Serbian version. In September, Japan will fully promote and launch new split machines, entering the core market in the second half of the year as scheduled. The new tobacco industry of British American Tobacco achieved revenue of 470 million in the first half of the year, a year-on-year increase of 38%, with sales volume of 5 billion packets of oral tobacco, an increase of 42%, and a 206% sales growth in the US market. The US market for new oral tobacco products exceeds 2 billion (surpassing the illegal vaping e-cigarette market), with the scale expected to double in the next two years. Guotai Haitong's main points are as follows: Vaping market under pressure in the first half of the year, awaiting improvement of the situation In the first half of 2025, British American Tobacco's vaping e-cigarette business in the UK and the US achieved revenue of 737 million, a year-on-year decrease of 15%, with a 13% year-on-year decrease in the sales of vaping cartridges. This is mainly due to the impact of illegal products in the US/Canada markets, dynamic changes in Europe/France/South Africa/New Zealand markets, and the active exit from the Malaysian/Saudi Arabian market to increase return on investment. Some key illegal disposable brand inventories in the US have been cleared out, but it will still take some time for the direct impact due to the long industrial chain. VuseUltra in Canada has received positive feedback, and will continue to be pushed into key markets in the second half of 2025. HNB's overall performance was stable, with GloHilo helping to expand market shares in pilot areas In the first half of 2025, British American Tobacco's heated non-combustible e-cigarette business achieved revenue of 4.44 billion, a year-on-year increase of 1%, with sales of 10.1 billion heating rods, an increase of 2%. Sales increased in Japan, Poland, and other regions, but were offset by declines in Germany, Romania, Czech Republic and other regions (due to the reallocation of resources before the promotion of GloHilo). With the launch of GloHilo, Glo's market share in Sendai increased by 1.5 percentage points (Week 5 data), successfully establishing itself in the high-end market, with products more adapted to users compared to the Serbian version. In September 2025, Japan will fully promote and launch new split machines, entering the core market in the second half of the year as scheduled. The new oral tobacco market in the US is making rapid progress, leading to high performance growth In the first half of 2025, British American Tobacco's new oral tobacco business achieved revenue of 4.70 billion, a year-on-year increase of 38%, with sales of 5 billion packets of oral tobacco, a year-on-year increase of 42%, and a 206% sales growth in the US market. After the launch of VeloPlus in May 2025, Velo's market share reached 9% in the US, and increased to 17% in July, becoming the fastest growing oral tobacco brand, with a repurchase rate of 70%. The US market for new oral tobacco products exceeds 2 billion (surpassing the illegal vaping e-cigarette market), with the scale expected to double in the next two years. Investment recommendation The global HNB industry is entering a new product lifecycle, with major brands actively participating in market cultivation and the industry scale expected to accelerate expansion. Recommended investment targets with product technology and competitive supply chain capabilities include British American Tobacco (BTI.US) and SMOORE INTL (06969). Risk factors Enforcement in the US may not meet expectations and new product market promotion may be below expectations.