ALL is not lost for British American Tobacco (M) Bhd whose share price has taken a big bashing from the consumption of illicit cigarette and the closely knitted issue of poor enforcement against smuggling activities.
There is a glimmer of hope with Finance Minister Tengku Datuk Seri Zafrul Aziz expressing the Government’s desire to tackle illicit tobacco vis-à-vis Budget 2021 in a more wholesome manner.
The esteemed minister, however, scotched expectations for a revision of excise duties in the Nov 4 New Straits Tines interview – something that BAT Malaysia has campaigned for to redress the affordability issue.
That being said, CGS-CIMB Research noted that it has never been hopeful for an excise duty cut.
“Doing so could send a wrong signal to the public that the government encourages smoking,” wrote analyst Kamarul Anwar in a company update.
“Also, we are lukewarm on the idea of increasing enforcement. Previous governments have said the same thing; yet the illicit cigarette trade continues to thrive.”
Nevertheless, CGS-CIMB noted that not all is lost for BAT Malaysia and the legal cigarette industry. One area that the Government could look at is regulating e-cigarettes and vaping.
“The previous government had worked on a Bill pertaining to this matter and the COVID-19 pandemic has caused further delays,” recalled Kamarul.
Although JT International Bhd managing director Cormac O’Rourke has reportedly revealed that the illicit tobacco market share inched up from 62% in July to 65% in August, CGS-CIMB Research said it is inclined to believe that the rise was due to vaping which is gaining popularity among young Malaysians.
“Even Zafrul said that the year-to-date cigarette excise duty collection was higher year-on-year, indicating a rise in legal volume,” Kamarul pointed out.
All-in, CGS-CIMB Research maintained its “add” rating on BAT Malaysia with its dividend discount model-derived target price of RM12.65 and consideration that the legalisation of vaping as “a major upside risk”.
“We are of the view that whatever is announced for the tobacco industry during Budget 2021 will at worst be a neutral development,” opined Kamarul.
“We believe the Government is cognisant that it cannot afford to deter smokers from legal cigarettes any further.”
At 9.30am, BAT Malaysia was up 4 sen or 0.39% at RM10.22 with 48,300 shares traded, thus valuing the company at RM2.92 bil. – Nov 6, 2020
Ends.
