MALAYSIA can emerge as a significant player in the global vape market with the right regulatory framework to draw investment from investors in the vape industry.
This is the view of investment and economic analyst Pankaj Kumar based on his analysis on Chinese-based e-vapour company RLX Technology (RLX).
“Listed on the New York Stock Exchange early this year, RLX’s market value today is US$14.1 bil or RM58.4 bil. The company is today China’s largest e-cigarette brand,” revealed Pankaj.
“According to China’s Insight Consultancy, RLX has gained a 62.6% market share in its short three-year history.”
In 2020, RLX’s revenue leapfrogged 147% to reach US$585 mil which is more than 30 times of its first full year of business operations in 2018.
In its 1Q FY2021 report card, RLX’s revenue jumped 48.2% year-on-year (yoy) to reach US$366.1 mil (RM1.52 bil).
Moving forward, even with a very low penetration rate, RLX growth is expected to remain spectacular as there is so much potential in this industry globally.
“Statistics out of China show that the world’s most populous country with some 308 million smokers has an e-cigarette penetration rate of just 1.2%, leaving plenty of growth headway for RLX,” observed Pankaj.
“The remarkable journey that the company has undergone is something that any Malaysian company could do as well.”
Big prospects
According to Pankaj, the vape sector drew his attention following a new study conducted by Grand View Research Inc that projected the global vape market size to reach US$67.31 bil (RM279.10 bil) by 2027 or a revenue-based compound annual growth rate (CAGR) of 23.8% from 2020 to 2027.
According to the Malaysian Vape Chamber of Commerce, there are more than 330 manufacturers and importers in the country, of which some 28% are already exporting their end products overseas.
The vape industry employs more than 3,000 retailers and employs more than 15,000 Malaysians.
“Being truly a thriving and growing industry, the industry itself can be a significant economic contributor to Malaysia’s growth,” noted Pankaj.
“Just like China, Malaysia’s less than 5% penetration rate coupled with significant growth prospect that the global market is experiencing means that the local vape industry is poised for explosive growth in the years ahead.”
Additionally, there is growing demand in Southeast Asia as more countries in this region are moving towards regulations such as the Philippines and Indonesia.
“It is foreseeable that more Chinese vape companies would make a strategic move to expand their manufacturing footprint outside of China to set up a regional manufacturing hub to grow its consumer base in this region,” projected Pankaj.
For this reason, Pankaj believes that Malaysia needs to step up its efforts on the regulatory front so as to be prepared for the strategic expansion by the Chinese vape companies.
“First, is to take the step to regulate the vape industry. Investors are more ready to invest in a country when the Government maps out regulation for the industry as this provides certainty on the industry and to the investors,” he stressed.
“Second, is to make sure that the products that are sold meet safety and quality standards. This would give confidence to consumers that the products are regulated and safe to be used.
“Third, is to provide a level playing field on taxes imposed as presently only liquids for e-cigarette that are zero nicotine-based attracts excise duty of 40 sen/ml while nicotine-based liquids which is more than 95% of the market, is left untaxed and unregulated.”
With regulations, Pankaj said the Government will be able to gain significantly in terms of not only tax revenue but draw investments from international investors that are looking to expand.
“With better and greater regulatory control, Malaysia could emerge as a magnate for the vape industry to thrive and create an oasis of prosperity for serious market players,” suggested Pankaj.
“Ultimately, Malaysia can emerge as an investment destination for foreign direct investment (FDI) in this area as the research & development (R&D) of different and sophisticated liquids is endless.” – June 30, 2021
