The decision to enforce a smoking ban on those born after 2005 is likely to exacerbate the woes of many tobacco companies including British America Tobacco (Malaysia) Bhd (BAT whose future remains uncertain, analysts told Business Today.
They said that the outlook for these tobacco companies had already been affected due to the pandemic and the increasing cost of living, and the present proposed legislation is not likely to help these companies
Minister Of Health Khairy Jamaluddin said that with legislation that is to come in July, those born after 2005 will not be able to buy smoking products and this will deter youth from buying cigarettes
Analyst at CGS CIMB, Kamarul Anwar said Malaysia can learn from history wherein the 1920 alcohol prohibition in the US exemplified how an outright ban of vices eventually led to the proliferation of the black market, which created another set of social issues and crimes.
He said that In Malaysia raising cigarette excise duties has only perpetuated the tobacco black market and vape grey market adding that smoking is not just a health issue but a socio-economic one as well.
“Smoking is more prevalent among low-income earners the world over, and in Malaysia, over 74% of smokers come from households earning below the 2016 national household median, according to findings from the National Health and Morbidity Survey 2015,” he said.
It is estimated that the black market currently commands approximately 60% of the total market and causes a loss of RM5 billion in tax revenue every year.
On BAT’s growth prospects, he said that BAT had hoped that the tobacco would allow it to branch into reduced harmful products, like vapes, which are currently illegal under the Poisons Act 1952.
However, he said that the delay of the bill’s tabling could increase the chance of smokers, who are already feeling the pinch from rising daily expenses, turning to grey market vapes.
He said that he thinks that it was no coincidence that BAT’s sales recovery in FY20-21 only happened when the Covid-19 lockdowns were imposed; while many Malaysians lost their income, some were saving on other expenses and channelling the extra money to cigarettes.
On the prospects of BAT, he said that FY21-FY23 would not be affected by the generation end game law. “However, the idea of banning vapes to a future generation could further stymie BAT’s upcoming vape gambit.
Already, this supposed catalyst has been tempered by the high excise duties for vape liquids. “The ugly side of vape regulation” for our views on the planned excise duties.
He said that the planned regulation brings risk to BAT’s longer-term future earnings prospects, cash flows, and dividend pay-outs because it could erode BAT’s customer base as time goes by.
He said that dividend discount-based model TP rises to RM10.53 but adds that its call remains a “Reduce” given the unconducive regulatory framework for legal cigarette volume growth.
