BURSA Malaysia’s sole cigarette manufacturer British American Tobacco (M) Bhd (BAT Malaysia) has upped its ante against the Health Ministry’s (MOH) generation end game proposal which seeks to ban the sale of cigarettes and other smoking products to those born after 2005.
Rather than astroturfing behind third-party experts or non-profit organisations, CGS-CIMB Research opined that by speaking up for itself as an industry player, BAT Malaysia is better able to send a strong signal to the Government that its generation end game comes with a domino of social risks that will ultimately enrich black market players only.
“The group said it had presented its view to the Government where it shared case studies of countries that implemented a blanket ban on smoking and ended up amplifying their shadow economies and smoking populations,” revealed analyst Kamarul Anwar in a company update following BAT Malaysia’s post-1Q FY2022 virtual briefing yesterday (June 10).
Below are more of BAT Malaysia’s further argument in opposing the MOH’s blanket ban approach:
- Prices of regulated cigarette are out of many Malaysians’ reach – especially when the world is battling with high inflation.
- The gap between legal and illicit cigarette prices ought to be narrowed to combat the black market (in this regard, either BAT Malaysia wants the illicit cigarettes’ supply to be slashed so that their prices would soar near legal cigarettes or that it hopes the Government would consider lowering excise duty on cigarettes).
- Should a minimum-wage earner smoke a pack of cigarettes every day, the cigarette bill would make up at least a quarter of the person’s gross income (this is considering that contraband cigarettes are sold between RM4 and RM9 for a 20-stick pack while legal cigarettes retail between RM12 and RM17.40/20-stick pack).
Moving forward, CGS-CIMB Research does not expect the present administration to do its part to relieve the woes of tobacco players.
“Health Minister Khairy Jamaluddin appears to be determined to table the Tobacco and Smoking Control Act in July’s parliamentary sitting (according to a Bernama report in April),” the research house pointed out. “This bill covers the “generation end game” and vape regulations.”
Moreover, CGS-CIMB Research said the Finance Ministry has not indicated that it is considering stakeholders’ grouses against the RM1.20/ml-excise duty for vape liquid and gels.
“And the economic re-opening, in our view, should kick-start BAT Malaysia’s sales volume slide again as smokers will need to re-allocate their incomes to other obligations,” stressed the research house.
Against such bleak outlook, CGS-CIMB Research has reiterated its “reduce” rating on BAT Malaysia with an unchanged dividend discount model (DDM)-based target price of RM8.77 which presents a 26.8% potential downside, thus outweighing the gain from its projected CY2022-CY2024F’s 6.9% dividend yield.
“The upside risks include the Government rescinding its generation end game proposal on cigarette sales and tones down on the vape liquid excise duty,” added the research house.
At the close of yesterday’s trading, BAT Malaysia was down 6 sen or 0.5% to RM11.98 with 204,500 shares traded, thus valuing the company at RM3.42 bil. – June 11, 2022
