By TMR / Pic By BLOOMBERG

THE British American Tobacco (M) Bhd (BAT) will likely lose out to existing vape players due to the Health Ministry’s non-committal to its plan to table a new tobacco bill this year, citing the need for more engagements with industry players, said CGS-CIMB Securities Sdn Bhd in a research report yesterday. 

On March 3, as per Bernama’s report, Health Minister Khairy Jamaluddin Abu Bakar said that the proposed act that covers a smoking restriction against those born after 2005 is “still in the engagement stage” and will be tabled in Parliament only after this process is completed — which could be in “this (Parliamentary) session or a future session”. 

Previously, the health minister was adamant that the bill, tentatively called the Tobacco and Smoking Control Act, would be ready to be proposed and debated in the current session of Parliament, said analyst Kamarul Anwar. 

The Act also covers the regulatory framework for vaporiser products and electronic cigarettes. 

The delayed vape regulation is also expected to have a long-term negative impact on BAT. 

BAT had hoped that the proposed tobacco bill would allow it to branch out into reduced-harm products, like vapes, which is currently illegal under the Poisons Act 1952. 

“However, the delay of the bill’s tabling could increase the chance of smokers, who are already feeling the pinch from rising daily expenses, turning to grey-market vapes, in our view. 

“We think it was no coincidence that BAT’s sales recovery in the financial year 2020 (FY20)-FY21 only happened when the Covid-19 lockdowns were imposed; while many Malaysians lost their income, some were saving on other expenses (thanks to government aid and a lack of social and travelling activities) and channelling the extra money to cigarettes. 

The illicit tobacco’s year-on-year reduction in market share in November 2021 (55% from 64% in 2020) did not translate into a binary exchange with the legal market because vapes were in the equation,” said Kamarul. 

He added that the research outfit was concerned that the bill could reach a stalemate if no stakeholder budges from its stance. 

“One major issue arising from the proposed Act is the Finance Ministry setting the vape liquid and gel excise duty at RM1.50/ml, which the Bumiputra-majority vape-trader community had baulked at because it is much higher than the existing vape liquid’s retail price/ml,” he added. 

CGS-CIMB dialled down its estimates for BAT’s FY22F marketing expenses due to the slim chances of the group rolling out its vapes by this year. 

“This consequently raises our FY22F and FY24F EPS by 5%-6%. Our DDM-based TP rises to RM10.53, but our call remains ‘Reduce’ given the unconducive regulatory framework for legal cigarette volume growth,” the analyst stated. 

Potential derating catalysts are lower sales and more down-trading while upside risk are the government rescinds its “generation end-game” proposal for cigarette sales and tones down on the vape liquid excise duty.