IN a 180-degree twist of opinion, CGS-CIMB Research has openly expressed concern that the recent imposition of excise duty for vaporiser products could breed a black market for the vape industry.
In the tabling of Budget 2022 on Oct 29, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz revealed that that the Government would be charging an excise duty of RM1.20/millilitre for nicotine-based vape gel and liquid from Jan 1, 2022 onwards.
The research house has initially felt that many Malaysian vapers can tolerate the RM1.20/ml excise duty as it thought that a closed-system vape device – or a vape pen as some may call it – does not require much liquid.
Moreover, British American Tobacco Malaysia Bhd (BAT Malaysia) has estimated that half of the circa 1.2 million vapers in Malaysia today prefer vape pens instead of those open-system ones that are bulky and modifiable.
“Yet, as we sit and stew for longer, we become concerned with the retail prices for other vape products. The open-system vapes which guzzle more vape liquid than close-system ones could be expensive,” contended analyst Kamarul Anwar in a BAT Malaysia company update.
“The open-system vape liquids are sold in bottles of 30-60ml at around RM30-55/bottle. The excise duties for these vape liquid bottles alone would be more than the current retail prices, at RM36-72/bottle.”
While the high excise duty could encourage more open-end vape users to migrate to closed-system ones, CGS-CIMB Research expressed concern that retailers and users would refrain from paying the excise duty, hence birth a new black market.
“One vape liquid manufacturer’s shareholder we spoke to said the existing players unanimously echoed the view of Malaysian Vape Industry Advocacy (MVIA) president Rizani Zakaria on the excise duty rate with some even willing to risk the occasional enforcement raids as that would be more worthwhile than permanently losing customers to high retail vape prices post-excise duty.”
Given its concerns, CGS-CIMB Research has retained its “hold” rating on BAT Malaysia with a DDM (dividend discount model)-based target price of RM14.38 which “does not incorporate sales contribution from vapes”.
“With the existing vape manufacturers and distributors displeased with the RM1.20/ml vape liquid excise duty rate, we are concerned that this could spawn a monstrous black market akin to that which has long haunted the combustible cigarette category,” justified the research house. “Legal cigarettes, in our view, will continue to wane in relevance.”
A catalyst for BAT Malaysia is that the Government revises downward the excise duty rate on vape liquid, added CGS-CIMB Research.
At 12.24pm, BAT Malaysia was down 6 sen or 0.4% to RM14.88 with 61,000 shares traded, thus valuing the company at RM4.25 bil. – Nov 9, 2021
