ON July 2, Malay-language tabloid Harian Metro published an exposé on the “Ben Gang” which is said to have a stranglehold on Malaysia’s contraband cigarette market.
When the Government placed an embargo on cigarette transshipment at seaports from Jan 1 to curb smuggling, the Ben Gang re-calibrated its modus operandi.
After smuggling in cigarettes from Vietnam, these products were moved to barter boats to be traded in international waters, according to Harian Metro. The cigarettes would then be shifted to fishermen boats before being unloading at specific beaches.
According to CGS-CIMB Research, the Harian Metro exposé implicitly illustrates Malaysia’s structural socio-economic woes: criminal syndicates will continue to serve the market in regardless of whatever roadblocks placed because there will always be demand for contrabands.
In fact, the research house refrained itself from naming cigarette transshipment ban as a possible catalyst for British American Tobacco Malaysia Bhd’s (BAT Malaysia) outlook simply because it does not concord that such ban alone can effectively thwart multi-billion ringgit criminal activity.
“Our view remains that Malaysia’s tobacco industry is structurally dogged by a mismatch between high cigarette prices and low disposable incomes,” justified analyst Kamarul Anwar in a company update.
“Plus, Malaysia’s cigarettes are one of the most expensive in the world relative to income based on our proprietary analysis on the ratio of local cigarette prices to minimum wages of various countries.”
Moreover, the weak purchasing power continues to deteriorate on the back of the movement control order (MCO) with Malaysia’s median income sinking 15.6% year-on-year (yoy) to RM2,062/month in 2020.
“With desperate times come desperate measures; the (Harian Metro) article revealed that fishermen and tourist boat owners assisted the gang’s smuggling activities to supplement their diminishing incomes,” CGS-CIMB Research pointed out.
All-in-all, the research house reiterated its “hold” rating on BAT Malaysia with a dividend discount model (DDM)-based target price of RM15.40.
“While we expect sales volume to grow yoy in FY2021F due to our belief that more smokers who had kicked the habit were lighting up again during the lockdown, this may not be enough to push BAT Malaysia’s sales to prior levels,” it opined.
“The phenomenon of Malaysians erecting white flags to plead for food and other supplies as the MCO stretches on brings a risk that BAT Malaysia’s sales may not continue to grow in FY2022-2023F.”
While it believes BAT Malaysia’s catalyst lies in the legalisation of electronic cigarettes and vaporiser products, CGS-CIMB Research doubted that this may happen in 2021.
“The Parliament will only resume tentatively in September 2021 but there may be other more pressing issues that the lawmakers will want to hash out first,” added the research house.
At the close of the mid-day trading, BAT Malaysia was down 8 sen or 0.54% to RM14.64 with 50,600 shares traded, thus valuing the company at RM4.18 bil. – July 19, 2021
