KUALA LUMPUR: AllianceDBS Research believes that without strict enforcement, a price increase in tobacco could lead consumers to trade down to illicit cigarettes.
The research house said the introduction of the higher Sales and Service Tax could impact earnings for cigarette manufacturers, which would require the government to intensify efforts to curb smuggling of illegal cigarettes.
"Given that illicit trade remains high (62% market share); we believe that another price hike would further widen the gap between prices of legal and illegal cigarettes (RM12-17 vs RM3-4 currently).
"Consumers’ affordability will be affected and they might down trade to much cheaper products," it said.
In its report on British American Tobacco
Malaysia Bhd, AllianceDBS said 3QFY18 was an expectedly positive quarter as the company benefited from the Goods and Services Tax holiday.
However, given some confusion over prices following the introduction of the SST, the tobacco industry is requesting for more clarity and guidance from the Ministry of Health, which is now set to announce a new price structure next month.
AllianceDBS maintained its hold call on BAT with a target price of RM32.55.
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