THE illicit tobacco trade which currently commands close to 60% of the total market has continued to weigh down on the performance and operations of the legal industry while causing the Government to lose about RM5 bil annually in uncollected tax revenue.
In this regard, British American Tobacco (M) Bhd – the only listed cigarette manufacturer on Bursa Malaysia today – is concerned that the tobacco black market prevalence may rise further as a result of the re-opening of borders and resumption of cross-border trade and travel.
The tobacco black market entails criminal gangs smuggling across borders, engaging in large-scale tax evasion and producing counterfeit cigarettes.
“This may potentially reverse the downtrend achieved in 2021 following measures put in place by the Government to curtail this problem,” BAT Malaysia’s managing director Nedal Salem pointed out in a media statement accompanying the release of the company’s 1Q FY2022’s financial results yesterday (May 27).
“It is extremely critical that the Government now focusses its attention and resources to increase enforcement and reinforce border security.”
According to Nedal, policy stability is also crucial to ensure that tobacco black market syndicates are not inadvertently incentivised, further triggering an uptick in prevalence.
“Instead, the Government should seize the opportunity to explore measures to close the price gap between legal and black market tobacco products,” he stressed.
In another industry-related development, Nedal said BAT Malaysia is encouraged by the Government’s move towards regulating the vape industry in Malaysia.
“Vape regulations must be premised on scientific-evidence and data-driven facts so as to allow Malaysian smokers access to alternatives with reduced-risk potential to smoking and ensure the products used are compliant with quality and safety standards,” he opined.
“Progressive regulations on vaping would be in tandem with BAT Malaysia’s purpose of building A Better Tomorrow as the company aims to focus on reducing the health impact of its business by offering a greater choice of less risky products to consumers.”
Financial-wise, BAT Malaysia said it posted an 8% decline in revenue to RM521.56 mil from RM566.55 mil in the same period a year ago due to a volume decline sparked by the onset of the Omicron COVID-19 variant that affected purchasing habits during the said quarter as well as the persistently high illicit cigarette incidence and other seasonal factors.
In tandem with this, the company’s net earnings during the period under review dipped 17% year-on-year (yoy) to RM52.29 mil from RM63.11 mil.
Nevertheless, BAT Malaysia’s cost rationalisation efforts successfully reduced operating expenses by 14% or RM8 mil yoy. This has thus mitigated the impact of lower volume to its profit from operations which was marginally lower at RM82 mil compared to RM87 mil in 1Q FY2021.
At the close of yesterday’s (May 27) trading, BAT Malaysia was up 10 sen or 0.95% to RM12.78 with 32,700 shares traded, thus valuing the company at RM3.65 bil. – May 28, 2022
