KUALA LUMPUR (Oct 30): CGS-CIMB Securities Sdn Bhd said today it had lowered its British American Tobacco (M) Bhd (BAT) share target price (TP) to RM18.53 from RM21.88 after cutting its BAT earnings per share (EPS) forecast by 2% to 15% for financial year ending Dec 31, 2019 (FY19) to FY21.

CGS-CIMB analyst Kamarul Anwar wrote in a note today that in the research firm's view, the problem plaguing the tobacco industry, namely consumers' waning purchasing power, is a structural issue that cannot be ameliorated overnight.

"De-rating catalysts are a ban on vapes, and illicit cigarette market share growth. Upside risks are a meaningful reduction in illicit cigarette market share, and the legalisation of vapes and electronic cigarettes (e-cigarettes).

"While our estimated 6% FY20 (dividend) yield seems attractive, we expect this to fall progressively as earnings erode going forward," Kamarul said.

At 11.52am, BAT shares fell six sen or 0.32% to RM18.88 with 52,500 units traded.

CGS-CIMB contends that BAT and its peers will stand to lose if the Malaysian government decides to ban vaporisers and e-cigarettes.

Kamarul said CGS-CIMB thinks it will be difficult for authorities to extinguish vapes, should a ban be instituted, when they are already struggling to contain illicit cigarettes.

"YTD (year to date), vaping commands circa 10% (of the) local tobacco market share, from virtually zero in 2015. Nicotine vapes are already illegal in Malaysia under the Poisons Act 1952 but the grey market continues to flourish.

"Cigarette prices have jumped by RM7.40/pack, or 74%-87% (6-year CAGRs of 10-11%), between 2012 and November 2018. Even in the affluent Klang Valley area, smokers told us they are feeling the pinch from the now more costly cigarettes, which have led them to turn to vapes," he said.