KUALA LUMPUR (Feb 9): Hong Leong Investment Bank (HLIB) Research and Kenanga Research expect further challenges for British American Tobacco (Malaysia) Bhd (BAT Malaysia) in light of the proposal to ban all types of cigarette products for those born after 2005 (a generation smoking ban), as well as renewed illegal activities as a result of the proposed ban.
The Ministry of Health plans to ban the sale of smoking products in order to permanently stop the younger generation from smoking. Minister Khairy Jamaluddin has announced that a new Tobacco and Smoking Control Act will be submitted to Parliament for this purpose, which will also regulate the use of vapes and e-cigarettes.
Although the ban is not expected to take effect immediately, HLIB believes that gradual shrinking of the customer base will be detrimental to BAT Malaysia.
“With that, we lower our long-term growth rate [forecast] for BAT from 2.5% to 1%, [but] we make no changes to our earnings forecasts as we do not foresee the potential smoking ban to have any significant impact on our financial year ending Dec 31, 2022 (FY22) and FY23 forecasts,” said HLIB analyst Sophie Chua Siu Li in a note.
HLIB maintained its "hold" recommendation on BAT Malaysia, with a lower target price (TP) of RM12.14 from RM14.16 previously due to a lower long-term growth rate.
The government’s recent announcement of the plan to prohibit all tobacco and cigarettes products for those born after 2005 will curb sales, which will likely boost demand for illicit products, according to Kenanga.
“We also view that challenges will be aplenty given that contraband remains a significant threat as syndicates continue to find new avenues to smuggle illicit goods. Enforcement activities will likely be lower given the easing of travel restrictions,” said Kenanga analyst Ahmad Ramzani Ramli.
Kenanga cut its TP to RM13.10 from RM16.70 previously, but maintained its "outperform" recommendation on BAT Malaysia due to its consistent enticing dividend yields of more than 7%.
At the midday break on Wednesday (Feb 9), BAT Malaysia had risen by 2.74% or 34 sen to RM12.74, giving the group a market capitalisation of RM3.64 billion.