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BAT aims to place its vape brand in mid-market range

by S BIRRUNTHA / pic by HUSSEIN SHAHARUDDIN

BRITISH American Tobacco (M) Bhd’s (BAT) aims to position its vape brand in the affordable mid-market price range once the formalised regulatory framework is released in the fourth quarter of 2021.

Maybank Investment Bank Bhd (Maybank IB) stated that the tobacco manufacturer guided in its 3Q21’s results briefing that the vape product, Vuse, will be priced similar to its value-for-money and aspirational segments for cigarettes.

The bank’s analyst Jade Tam noted that BAT did not guide on product prices at this juncture.

“Following Budget 2022 announcement on nicotine-based excise tax on vape juices and gels from Jan 1, 2022, BAT is awaiting the release of a formalised regulatory framework before it can launch its own brand in Malaysia.

“BAT did not share its pricing strategy but it aims to position Vuse in an affordable mid-market price range,” Tam wrote in a recent note.

The vape market currently accounts for about 10% of industry volume share and BAT targets to be a market leader within three years.

Tam wrote BAT’s management stated that the prosperity tax announced in Budget 2022 could potentially raise its financial year 2022 (FY22) tax expense by about RM20 million.

“Inputing a higher effective tax rate of 31% (versus 27% previously), we prudently lowered our FY22 earnings estimates by 6%. Our FY21 and FY23 earnings estimates are unchanged,” Tam wrote in a report yesterday.

Maybank IB has maintained its ‘Buy’ call on BAT with an unchanged discounted cashflow-based target price (TP) of RM15.20.

BAT stated that the positive volume growth in products sold year-to-date was mainly attributed to the clawback of legal volumes after firmer trans-shipment regulations were enforced on Jan 1, 2021.

This also led to a decline in illicit share to 57.9%.

The group also incurred restructuring costs of RM2 million in the quarter for certain parts of its trading business which moved onto digital platforms.

The exercise is expected to be completed by the first half of 2022.

Meanwhile, CGS-CIMB Securities Sdn Bhd is concerned about the recent imposition of excise duty for vaporiser products could create a black market for vapes.

Its analyst Kamarul Anwar said many Malaysian vapers can tolerate the RM1.20 per ml excise duty, as a closed-system vape device or a vape pen as some may call it, does not require much liquid.

The RM1.20 per ml vape liquid excise duty could however more than double the retail prices of some vape products.

In a report on Tuesday, Kamarul wrote that the open-system vapes, which guzzle more vape liquid than close-system ones, could be expensive. The open-system vape liquids are sold in bottles of 30ml to 60ml at around RM30 to RM55 per bottle.

“The excise duties for these vape liquid bottles alone would be more than the current retail prices, at RM36 to RM72.

“While the high excise duty could encourage more open-end vape users to migrate to close-system ones, we fear retailers and users would refrain from complying with paying the excise duty — and hence birth a new black market,” he wrote.

CGS-CIMB Securities has maintained its ‘Hold’ call on BAT with a dividend discount model (DDM)-based TP of RM14.38.

The broker’s FY21 to FY23F forecasts and DDM-based TP do not incorporate sales contributions from vapes.

“Legal cigarettes, in our view, will continue to wane in relevance,” Kamarul added, noting that a catalyst for BAT is the government move to revise down the excise duty rate on vape liquid.

Downside risks for BAT could come from more down-trading to value-for-money cigarettes and smokers cutting down their cigarette intakes once the economy reopens.

Zukri

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