THE implementations of transhipment and import restrictions in Malaysia have started to yield early success in cracking down illicit cigarettes, leading to a legal industry volume recovery of 19% year-on-year (yoy).
Nevertheless, a more concerted effort is required on the enforcement front to consistently curb smuggling activities.
This is the latest revelation at British American Tobacco (M) Bhd’s virtual analyst briefing where it was revealed that the level of illicit cigarette in Malaysia is believed to have declined from official reading of circa 64% in late-2020 to c.60% now.
On one hand, as pointed out by TA Securities Research, the management of the only listed cigarette manufacturer on Bursa Malaysia was excited that its 1Q FY2021 share of legal market increased by 1.9 percentage points (%-pts) to 52.3%.
“This was driven by the group’s leading flagship brand, Dunhill, which captured c.61% (+c.3.8%-pts year-on-year) market share in the premium segment alongside BAT’s growing value-for-money (VFM) brands, Rothmans and KYO, with market share increased to c.10% (c.4.1%-pts yoy),” justified analyst Jeff Lye Zhen Xiong in a company update.
While an official market research data on 1Q FY2021’s illicit share have not been completed yet, Maybank IB Research highlighted that tighter transshipment and import regulations have begun to bear fruit with an increase in the number of seizures at respective ports from February this year.
However, this has prompted some smugglers to turn to smaller coastal jetties to bring illicit goods onshore.
“Although illicit cigarette prices have risen c.RM2/pack (from RM3-4/pack), the price gap between illicit and legal cigarettes remains wide, hence consumer affordability will continue to be a roadblock to industry demand growth,” contended analyst Jade Tam.
Following the recent fall in BAT Malaysia’s share price, TA Securities Research has upgraded the company to “buy” (from “sell” previously) with an unchanged target price of RM15.70/share based on an unchanged discounted cash flow (DCF) valuation.
Meanwhile, Maybank IB Research expects BAT’s sales volume growth to be stable going forward with encouraging signs from tighter trans-shipment and import regulations on lowering illicit share in Malaysia.
As supply chain measures were put in place before the full movement control (FMCO) or total lockdown, operational disruptions will have a lesser impact to the company’s overall sales barring an extension to the total lockdown.
All-in-all, the research house maintained its “hold” rating on BAT Malaysia with an unchanged DCF-based target price RM14.60.
At 11.15am, BAT Malaysia was up 28 sen or 1.96% to RM14.58 with 116,800 shares traded, thus valuing the company at RM4.16 bil. – June 9, 2021
