Price war in tobacco market as BAT reverts prices to pre-SST level


  • Corporate News
  • Friday, 21 Sep 2018

KUALA LUMPUR: British American Tobacco Bhd has reportedly reverted prices of its cigarettes to pre-SST level, whereby its premium brands will cost RM17 compared to RM17.50, and Pall Mall and Rothmans will be reduced to RM15.50 and RM12 from RM16 and RM12.50 respectively. 

UOB Kay Hian Research noted that although Japan Tobacco International (JTI) has reduced prices of LD by 20 sen to RM11.80, prices of its premium brands Mevius & Winston remained unchanged at RM17.50 and RM16 respectively.

Previously, BAT and JTI had raised prices of cigarettes by 50 sen per pack, while Philip Morris International (PMI) had raised prices by 20 sen instead, stating that the 20 sen price was a full pass-through.

“The ongoing price war is similar to the price hike of 50 sen by BAT and JTI during the implementation of the GST in 2015 whereby PMI did not follow suit. 

“Eventually, all three players reverted to pre-GST pricing back then. 

“With BAT reverting its prices back to pre-SST level, we reckon other players such as JTI and PMI may follow suit to defend their market share,” it said.

The research house expects that since BAT has reverted prices to pre-SST levels, its sales volume should fare better than when it hiked cigarette prices by 50 sen. 

However, it noted that BAT now needs to absorb the SST which is estimated at 20 sen per pack, which works out to an earnings impact of about RM40mil per annum.

“We also reckon that the new government’s pledge to stop smuggling of alcohol and cigarettes across borders, and tighter control along borders will take time to be implemented,” it said.

It maintained its earnings forecast for BAT, as well as its Hold call and target price of RM30.
 
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