Japan Tobacco raised its full-year net profit forecast 2.8% to a record 662 billion yen on Thursday, after price increases across its tobacco markets and a 39.6% jump in heated tobacco volumes lifted nine-month profit by 20.9%.

The upgrade is the company's second this year, following a July increase reported by MarketScreener, and it matters most to income investors. JT kept its forecast for an annual dividend of 272 yen a share, up from 234 yen last year, and its filing set that payout at 73.2% of adjusted profit. At Friday's close, that works out to a dividend yield of about 3.8%, by Capital Times' calculation.

The shares had run up before the report. JT shares set all-time highs in the week to Oct. 23, according to stock news service Kabutan, and fell 2.1% to 7,247 yen on Friday, the first session after the results, which came after Thursday's close.

Japan Tobacco's growth comes from price, not volume

Revenue for January to September rose 13.6% to 2.99 trillion yen, and operating profit climbed 24.2% to 947.7 billion yen, the company said in its filing to the Tokyo Stock Exchange. Net profit attributable to shareholders reached 618.9 billion yen.

Stripping out currency swings, adjusted operating profit rose 16.9% to 934.7 billion yen. JT said a weaker yen and firmer local currencies lifted the reported figures. By Capital Times' calculation, about three-quarters of JT's own-brand tobacco revenue in the period came from outside its Asia division, which includes Japan.

Volumes did little. The group sold 437.4 billion sticks in nine months, down 0.3%, and cigarette volumes fell 1.0% as total demand shrank in Japan, Russia and Britain. Pricing carried the business instead. In the tobacco unit's profit bridge, price and mix added 228.5 billion yen at constant currency, while lower volume cost 14.2 billion yen and higher spending on Ploom and supply-chain inflation took 76.8 billion yen, according to the CFO presentation. JT named the Philippines, Russia, Turkey, Britain and the U.S. among the markets where price increases stuck.

The third quarter on its own was weaker. Kabutan calculated that July to September net profit fell 2.5% from a year earlier to 187.0 billion yen, although the operating margin widened to 30.1% from 27.7%.

Ploom gains ground in Japan and across Asia

The faster-growing part of the business is what JT calls reduced-risk products. Their volume rose 31.1% to 13.2 billion sticks in nine months, and heated tobacco alone grew 39.6% to 11.3 billion sticks. Revenue from these products rose 30.6% to 119.3 billion yen, still a small slice of the group's sales.

Japan is the core market. JT estimates that Ploom held 17.4% of Japan's heated tobacco category in the third quarter, up from 15.5% a year earlier but below 18.1% in the second quarter, on a shipment basis. The company credited its newer Ploom AURA device. It also said Japanese buyers stocked up before list prices rose following a tax increase on heated tobacco, which added to volumes in Asia.

That helped the Asia division, which includes Japan, Taiwan and the Philippines. Its adjusted operating profit rose to 253.1 billion yen in the nine months from 195.3 billion yen a year earlier, on tobacco revenue of 695.7 billion yen. JT cited Ploom growth in Japan and Taiwan and price increases in Japan and the Philippines.

What the new forecast assumes

JT now expects 2026 revenue of 3.90 trillion yen, 18 billion yen more than its previous forecast, and adjusted operating profit of 1.08 trillion yen, up 21.9% from last year. At constant currency, it expects adjusted operating profit to grow 16.1%, well above the high-single-digit annual pace it set in its three-year business plan announced in February. The CFO presentation said the raised forecasts put the company on course for record results.

The company also narrowed its volume outlook. It now sees total sales volume falling about 0.5% for the year, compared with a previous range of a 1% decline to flat, citing steady cigarette demand in Asia and market-share gains in Turkey and elsewhere.

Currency remains a tailwind that investors will watch. JT expects exchange rates to add 51 billion yen to the tobacco unit's adjusted operating profit this year, up from 47 billion yen in its previous forecast. A firmer yen would shrink that gain, which ties the stock to the Bank of Japan's rate path.

One number moved the other way. JT cut its free cash flow forecast by 55 billion yen to 596 billion yen, mainly because of payments to acquire fine-cut tobacco brands from Scandinavian Tobacco Group. The dividend calculation also reflects an adjustment for annual payments under the settlement of tobacco litigation in Canada involving its local unit, JTI-Macdonald.

Brokers moved quickly. On Friday, Goldman Sachs raised its price target to 8,300 yen from 7,900 yen and UBS lifted its target to 8,500 yen from 8,150 yen, both keeping buy ratings, according to Kabutan. UBS's new target sits about 17% above Friday's close, by Capital Times' calculation.