KUALA LUMPUR: British American Tobacco Malaysia Bhd (BAT), the only listed tobacco company on Bursa Malaysia, emerged top loser in morning trade, shedding some 3%, as  sectoral headwinds are seen to continue next year.

At 12.10 pm, the counter was down RM2.02 to RM63.88 on some 41,700 shares traded. It rose to a high of RM66.48 – after closing at RM65.90 – before paring gains to the current level.

For comparison, KLCI was down 0.09% at 1,747.55.

The Edge Financial Daily reported today that the tobacco sector is set to face another challenging year ahead, as total industry volume (TIV) remained under pressure, following an excise hike last month which saw cigarette prices rose by RM1.50.

Managing director of JT International Bhd Rob Stanworth was cited as saying, “it would be reasonable to expect volumes to be under pressure following an excise and price increase based on past trends”. JT International Bhd carries the Winston brand.

He said this was especially so in the face of uncertain consumer sentiment driven by inflationary pressures, and illegal cigarettes trading, a long prevalent issue in Malaysia.

Despite seeing an up to a 10% contraction in TIV this year, and rising a little higher next year, analysts said higher selling prices should be sufficient to offset any drop in sales volume.

Many of them have raised their earnings forecast for BAT for FY14-16 and increased their target prices following the recent excise and price hikes, while maintaining their "reduce" or "hold" calls on the counter.

In comparison, analysts prefer Carlsberg Brewery Malaysia Bhd as a more attractive sin stock option for its higher yield now at about 5.2%, compared with BAT’s 4.3%. Analysts opine that BAT’s yield of less than 5% is not worth the potential risk.

The Edge Financial Daily also cited Areca Capital Sdn Bhd’s chief executive Danny Wong cautioning that the goods and services tax (GST) might prompt a slowdown in consumption and hence consumption stocks for about six months to a year after its implementation in April next year.

Wong acknowledged that tobacco would not be impacted much given its habitual consumption nature, but said investors do have many other choices in terms of yields.

“If inflation stands at a manageable level ... there are other 'yielders' such as REITs and banking stocks,” he said.