BAT has response to Philip Morris's iQos, says Affin Hwang

KUALA LUMPUR: British American Tobacco (Malaysia) Bhd is equipped to respond to the launch of Philip Morris International's flagship tobacco heat-not-burn (HNB) device, says Affin Hwang Capital research.

In a research note, Affin Hwang said BAT has yet to announce plans for the introduction of its own HNB brand, the Glo. However, it added that the iQos typically takes at least two quarters to gain traction, giving BAT time to make up for Philip Morris's first-mover advantage.

"On the other hand, the launch of HNB products should initially deflate BAT’s margins," it said.

The research house also noted postive action undertaken by the authorities to curtail the illicit cigarette market. 

" This supports our thesis for a broad earnings recovery for the legal tobacco players, particularly for BAT which commands the leading market share."

Affin Hwang maintained its buy call on BAT with a target price of RM40.20.

With regards to the iQos, Affin Hwang said it could be a game-changer for the local cigarette market, which has been relatively insulated from smoking alternatives such as e-cigarettes amid regulatory uncertainty.

The research believes the iQos could receive strong reception in Malaysia based on the robust demand it has seen in Japan and Korea. 

It is also more affordabile relative to premiunm cigarettes and alternatives such as vaping and e-cigarettes with purportedly reduced health risks. 

"Consequently, we expect the introduction of heated tobacco products to cannibalise the traditional cigarette market," it said.