PETALING JAYA: British American Tobacco (M) Bhd is likely to see its income source curtailed if the retabling of the Generation End Game (GEG) clause with the same restrictions against vapes are enforced.
CGS-CIMB Research said if the present government adopts the definition of GEG set by its predecessor, it reckons there would not be much upside to BAT’s dividend discount model valuation.
“We are not particularly concerned by the move to outlaw cigarettes among youngsters because we believe the activity is already passe but we find vapes to be popular among the youth.
“Restricting this group from vaping will cut off a huge chunk of BAT’s future income source, in our view.
“New Zealand, which was the first country in the world that proposed a generational ban on smoking, does not plan to prohibit vaping among its youth,” the research house noted.
The research house assumes that the Control of Tobacco Product and Smoking Bill 2022 would still be tabled eventually, seeing how the hasty change to taxing vapes comes with a lack of regulation over the manufacturing and distribution of the products.
For example, the minimum age for vape smokers and how much nicotine is allowed inside the refill liquid have not been determined.
And with the bill comes the GEG clause that the present administration has planned to implement.
The Tobacco Bill was mooted by the previous administration but it failed to come to pass as the Parliament was dissolved on Oct 10, 2022.
Under the previous government, the GEG was meant to stop young people born after a certain year from buying cigarettes or any smoking products including vapes.
Theoretically, smoking should come to a permanent end after the current generation, CGS-CIMB Research said.
Starting from April 1, 2023, e-liquid or gel containing nicotine would be imposed an excise tax of 40 sen per millilitre and the liquid nicotine used in electronic cigarettes and vape would be removed from the Poisons List of controlled substances.
To this end, Hong Leong Investment Bank Research said it is positive about the government’s move in regulating the vaping industry as it allows BAT to roll out its vape products and generate additional income.
“However, the success of Vuse penetrating the Malaysian market may be hindered by the extensive range of existing vape products in the market; and the significant price increase of e -liquid and gel after the excise duty charge that could fuel an illicit market.
“We maintain our forecast as we await more information about Vuse’s pricing structure in Malaysia.
“With BAT trading at an inexpensive valuation coupled with 9% dividend yield, we upgrade our rating to ‘buy’ from ‘hold’ with an unchanged target price of RM12.35,” it said.