BRITISH American Tobacco (M) Bhd will find itself structurally challenged by Malaysia’s drive to achieve smoke-free status and more so if the narration transition towards a “Tobacco End-Game”.
TA Securities Research sees an inherent risk in the business as the population that is legally allowed to smoke would decline upon Malaysia embarking on “Generation End-Game” for smoking.
“(This is even as) the near-term financial performance of BAT Malaysia could be supported by conversion from illicit trade and the potential contribution from a well-executed roll-out of vape products upon clear regulatory framework around nicotine vape,” opined analyst Jeff Lye Zhen Xiong, in a company update.
“For illustration, if Malaysia takes similar approach to New Zealand and enforces a smoke-free generation over population aged nine and under as of 2020, we estimate that Malaysian population who are legally allowed to smoke would peak by the year of 2030.”
Following its long-term growth rate assumption to 0.5% from 3.0% previously in view of the long-term structural challenge, TA Securities Research has downgraded BAT Malaysia to “sell” (from “hold” previously) with a lower target price of RM11 (from RM15.50 previously).
Last weekend, Health Minister Khairy Jamaluddin said he will table a new Tobacco and Smoking Control Act in the upcoming Parliament session to regulate e-cigarettes and vape products alongside the enforcement of a “Generation End-Game” for smoking in the long run.
The aspect of creating a smoke-free generation in Malaysia is not entirely new as the intention was made known through the National Strategic Plan on Tobacco Control (2021-2030) which targets to reduce current 20+% smoking prevalence to <15% by 2025 and <5% by 2040.
“Separately, regulations over e-cigarettes and vape products would present a new opportunity to Malaysian legal tobacco players in the flourishing vape market,” TA Securities Research pointed out.
“However, it remains to be seen whether vape adoption would merely act as a pathway to help smokers in quitting combustible cigarettes prior a ‘Tobacco End-Game’ or would it be permitted as a new harm-reduction products available to consumers for an indefinite period.”
At 9.40am, BAT Malaysia was down 10 sen or 0.74% to RM13.40 with 88,500 shares traded, thus valuing the company at RM3.83 bil. – Jan 19, 2022
