KUALA LUMPUR: Philip Morris (Malaysia) Sdn Bhd and JT International Bhd (JTI Malaysia) are also raising prices of all their cigarette brands by RM1.50 per pack from today to offset the recent increase in excise duty and sustain earnings in anticipation of lower sales volume.

According to a price list seen by The Edge Financial Daily, Philip Morris announced that the price of a 20-stick pack of Marlboro will now sell at RM13.50, while the L&M, Sampoerna A Red and Sampoerna A Menthol are priced at RM12 per pack effective today.

For JTI Malaysia, a 20-stick pack of Mevius and Salem cigarettes will now retail at RM13.50, while its Winston range of cigarettes is priced at RM12 per pack and the Camel packs for filter are priced at RM12.50 per pack and RM14 for the non-filter.

British American Tobacco (Malaysia) Bhd (BAT Malaysia), the country’s largest tobacco group by market share, led the pack in announcing the price increase, with prices of all its cigarette brands up by RM1.50 per pack of 20s since last Wednesday.

The price hikes come after an increase of 12% or three sen to 28 sen per stick in excise duty on Nov 1, which industry players said was unprecedented as the hike was made after the Budget 2015 announcement. The last increase in excise duty was in September last year before the upcoming budget.

It is understood that under the Control of Tobacco Products Regulation 2004, a rise in excise tax must be followed by a price increase of cigarettes and that the new prices must be approved by the Health Ministry.

“The price increase must be applied to the Health Ministry within seven days following the excise increase. We believe Philip Morris and JTI Malaysia had obtained approval from the ministry on Friday,” an industry player told The Edge Financial Daily.

Given the continued fall in legal sales over the years, analysts are expecting the latest price hike by tobacco players will accelerate the decline in sales volume.

“Although contraband cigarettes’ market share dropped 3.1 percentage points in the March to May 2014 period versus the October to December 2013 period, we note that the illicit market share is still high at 35.8%. We expect a rise in the contraband cigarette trade following the latest price hike,” said RHB Research in a note .

“The current estimated legal cigarette volume is 12 to 13 billion sticks a year, while illegal cigarettes are about eight to nine billion sticks a year. With this latest increase, it could for the first time see a market volume split of 50:50 between legal and illegal trade,” said an industry source.

“There is a view that with this increase, apart from volume pressures from potentially increased illicit trade, premium cigarette brands such as BAT’s Dunhill, JTI’s Mevius and Philip Morris’ Marlboro will be under heavy pressure from consumer downtrading [to cheaper tobacco products].”

This article first appeared in The Edge Financial Daily, on November 10, 2014.