China National Tobacco Corp., the world’s largest tobacco producer by volume, has filed for a Hong Kong initial public offering (IPO) for its overseas unit, China Tobacco International Inc (CTI).
The listing is expected to raise around US$100 million for the unit, which is primarily responsible for procuring overseas tobacco leaf from countries like Brazil and Canada for China National Tobacco, which churns out four of every 10 sticks made in the world. CTI derives revenue primarily from a fixed 6% markup it applies to the overseas tobacco leaf supply when selling to domestic cigarette manufacturers CTI also exclusively operates China's cigarette exports business with sales in duty-free outlets in places such as Thailand and Singapore. In May, it started a business exporting Chinese-made heat-not-burn tobacco devices.
CTI recorded revenue of US$651 million for the nine months ended in September 2019, a 21% drop from the same period last year, according to pre-listing documents issued January 2, 2019. It had a gross profit margin of 5.8%, down from 6.5% a year earlier.
Some analysts say that while presenting a rare opportunity for investors, CTI’s IPO faces challenges including stricter tobacco regulations, the US-China trade war, a forecast slump in revenue, and a struggling Hong Kong stock market.