KUALA LUMPUR (Aug 7): CGS-CIMB Research has maintained its 'reduce' call on British American Tobacco (Malaysia) Bhd (BAT), with an unchanged target price of RM21.88 per share, given the lack of catalysts for the stock and the gloomy outlook for Malaysia's tobacco industry.

In a note today, CGS-CIMB Research analyst Kamarul Anwar said news flow on Malaysia's tobacco industry has continued to weigh down on BAT shares.

He pointed out that the government's plan to regulate vapes under the upcoming Tobacco Act may bring a desired outcome for BAT and other tobacco players, but it could also be a non-event, depending on the excise duty rate and the final prices charged to consumers.

"On one hand, legalising vapes would give BAT a chance to introduce its sister companies' vapes to this market, enabling BAT to sit on a level-playing field with the incumbent vape products.

"However, if the tax rates on vapes make them much more expensive than they are now, we see the possibility of the existing vape players staying underground so as to not turn off customers with higher prices," Kamarul said.

Should the vape players stay underground, Kamarul is of the opinion that it will take a long time to weed out the illegal vapes from the market.

"As we speak, vapes are technically illegal, yet they are sold aplenty and openly. The enforcement agencies are also already struggling with eradicating illicit cigarettes, which held 60% of market share as at end-June 2019," he added.

Kamarul said as long as affordability continues to plague BAT's products, there is little reprieve for the company.

It was also noted that vape's market share has spiked from 1% to 2% of smokers to about 10%, within the last four years.

At 11.04am, BAT shares were trading up 14 sen or 0.62% at RM22.64 with a market capitalisation of RM6.42 billion.