SO, the British American Tobacco (M) Bhd (BAT) has finally unveiled its plan to roll out vapouriser products under the brand Vuse in the Malaysia market once the regulatory framework for the product category has been ironed out.
While BAT’s decision to finally penetrate this growing market is deemed positive, CGS-CIMB Research observed that there are still a few details left unanswered.
Chief among them is the timeline for BAT to launch its vapes. In fact, it is unclear whether there will be a need to amend the current law.
“The reason that vapes are illegal in the first place is because nicotine is one of the restricted products under the Poisons Act 1952,” justified analyst Kamarul Anwar in a company update.
“That being said, we cannot understate how positive it is for BAT to be able to finally join the vape industry.”
The group estimated that there are at least one million Malaysians who regularly vape which is circa 20% of the number of smokers in the country.
“We postulate that many of these are former cigarette smokers who have either been put off by the exorbitant prices or concerned about the health hazards from combustion-based cigarettes,” suggested Kamarul.
“There is also a growing number of young-adult vapers who have never even smoked a cigarette, deterred by decades of cigarette stigmatisation.”
As a whole, CGS-CIMB Research believes BAT has a better chance now of appealing to lapsed and new customers with its imminent entry into the burgeoning vape market.
“However, we maintain our FY2020-2022F forecasts as it is still too early to factor in contribution from vapes,” noted the research house.
All-in, CGS-CIMB Research reiterated its “add” call on BAT with an unchanged dividend discount model-based target price of RM12.65 on better recovery prospects.
It further projected that BAT’s yields for FY2021-2022F range from 7.3-8.1%, backed by the group’s commitment to pay out at least 90% of its reported net profit.
“Upside risks include more effective enforcement against cigarette smuggling and a speedy launch of its Vuse vape products,” suggested the research house. “The downside risks are more down-trading and smuggled cigarettes’ supply replenishing on the black market.”
TA Securities Research foresees opportunity for BAT in the vape market following the imposition of 10% excise duty on devices for all electronic and non-electronic cigarettes, including vape alongside excise duty of 40 sen per millilitre of liquid used in e-cigarettes.
“BAT’s parent company is known to have a strong line of vape products and the management indicated its intention to introduce vape in Malaysia although no timeline is provided at this juncture,” noted analyst Jeff Lye Zhen Xiong.
“That said, we reckon the opportunities lies ahead could be immerse given that vape products have been well-accepted by Malaysians even during the unregulated period.”
Considering that its business environment is likely to improve with government’s support in combating illicit trade, TA Securities Research maintained its “buy” rating on BAT with an unchanged discounted cash flow-based target price of RM14.50.
“Moreover, a sustainable dividend yield of over 8% is attractive in current low interest rate environment,” added the research house.
At 10am, BAT was down six sen or 0.53% at RM11.20 with 90,400 shares traded, thus valuing the company at RM3.2 bil. – Nov 19, 2020
