KUALA LUMPUR: Affin Hwang Capital research is positive on British American Tobacco
Malaysia Bhd's prospects following reports of the government considering an extension of its smoking ban to more public areas.
There is a risk of total cigarette volume sales being negatively affected by the extension of the ban although Affin Hwang believes the government's tighter oversight on tobacco usage will help to curb illicit cigarette trade.
"Overall, we hold onto our positive stance on BAT’s prospects, with potential gains from the authorities’ crackdown on the illicit cigarette trade (c.62% of total market) outweighing the risk of volume declines from the smoking ban extension," said the research house.
BAT had previously guided for a 1% decline in total cigarette volume sales as a result of the smoking ban in eateries, while Affin Hwang had factored in a 2% annual decline.
However, Affin Hwang aknowledged that the potential impact of the legislation is unclear as its observation of similar enactments in other countries revealed differing results.
"Based on our observation of global peers, the impact of a ban on smoking habits varies from country to country, depending on factors such as scope of implementation as well as degree of enforcement," said Affin Hwang.
The research house also expects the extension of the smoking ban to be limited in scope given that there are 19 types of places already covered by the ban since 2017.
It maintained its buy recommendation on the stock with an unchanged target price of RM40.20
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