KUALA LUMPUR (Oct 19): British American Tobacco (Malaysia) Bhd's (BAT) net profit for the third quarter ended Sept 30, 2018 was flat at RM145.81 million versus RM145.49 million a year earlier. Earnings per share remained the same at 51.1 sen.

Revenue also saw just a slight increase to RM735.53 million from RM734.61 million a year ago, which the group attributed to a volume decline as a result a slowing legal market.

The group has declared a third interim dividend of 40 sen per share to be paid on Nov 16.

For the cumulative nine months, net profit fell 14% to RM352.17 million compared with RM411.6 million previously, while revenue dropped 8% to RM2.05 billion from RM2.23 billion a year ago.

In a statement today, BAT said the total legal market is on a slow but gradual recovery since early 2018, while the llegal volume share is still at a high of  63% of total consumption in Malaysia.

While domestic volumes for the group remained stable, concerns remain with price volatility caused by the different interpretation in the market of the quantum of Sales and Services Tax (SST) that needs to be passed on, the statement added.

“Until today, we have not been given clear guidance on the minimum quantum that needs to be passed on. We have met with the bureaucrats of the Ministry of Health who have indicated an expectation of a price increase of about RM1, ignoring the fact that SST is a replacement of GST.

“It is also inconsistent with the recent statement by the minister of health that the ministry is looking at determining the recommended ceiling price to equalise and control cigarette prices across the board,” BAT Malaysia managing director Erik Stoel said.

Setting a price increase of such magnitude would also spark a fresh push towards illegal cigarettes, which will aggravate an already high incidence of illegal trade in the country, Stoel added.

“It was obvious that the 10% SST is a direct replacement of the 6% GST and the increase in price should include the incremental difference between the SST rate and the GST rate. This is also consistent with the practice in 2015 when the GST tax regime was put in place to replace the previous SST tax regime, where cigarettes price increase was effected based on incremental tax differential between the then 5% SST and the 6% GST,” he said.

Based on this, Stoel said the practice has been to take the highest tax differential amount as the minimum tax quantum that needs to be passed on, consistent with Ministry of Health regulations that require the minimum tax to be passed through in the cigarette pricing.

“We hope the price volatility brought on by the different interpretation of the SST implementation will cease soon, when we receive proper guidance from the Ministry of Health to enable the industry players in Malaysia to navigate through this complexity and minimise impact on consumers,” he said.

BAT shares closed down RM1.58 or 4.7% to RM32.02, for a market value of RM9.14 billion.