PETALING JAYA: The upcoming public display ban on cigarettes and vapour products under the Control of Smoking Products for Public Health Act 2024 (Act 852) is likely to reduce the legal volumes of combustible and vapour products by limiting brand visibility to the new generation of consumers in the long term.
Affin Hwang Investment Bank (Affin Hwang IB) Research said despite a decline in illicit cigarette prevalence and a slight increase in sales volume for 2024, the ban will impact tobacco companies.
Set to go into effect in April this year, the research house added that while the measures are commendable for public health, they may undermine the long-term growth prospects of the tobacco and vape industry.
The research house said this presents challenges for companies like British American Tobacco (M) Bhd
(BAT Malaysia).
The tobacco company’s revenue for financial year 2024 (FY24) remained flat at RM231mil, reflecting a 3.4% increase in volume compared to the previous year, largely driven by higher volumes in the fourth quarter of 2024 (4Q24).
However, its earnings before interest, taxes, depreciation and amortisation (Ebitda) margin dropped to 12.9%, a decrease of 0.8% year-on-year (y-o-y).
According to the research house, the drop was due to lower margins from vapour products, the shift towards the value-for-money (VFM) segment in line with the downtrading trend in the combustible industry, and higher operating expenses.
Furthermore, its core net profit fell 4.1% y-o-y to RM186.9mil, which Affin Hwang IB Research said was within its and consensus’ expectations.
The company declared a fourth interim dividend of 15 sen per share, bringing 2024 dividend per share to 59 sen.
In line with that, the research house said it will tweak its earning forecasts post full-year results for the company, while keeping its “sell” recommendation with a lower dividend discount model target price of RM5.20 per share from RM5.36.
BAT Malaysia closed 0.27% higher at RM7.31 last Friday.
“In the short term, the ongoing shift from traditional cigarettes to reduced-risk products will pressure combustible sales volume, and we believe BAT Malaysia’s reduced-risk products are insufficient to offset declines in the combustible tobacco segment,” it said.
In the long term, Affin Hwang IB Research said the industry outlook remains challenging as government policies remain unsupportive of both combustible and reduced-risk products.
“Upside risks could include a surge in combustible tobacco industry volume, a pick-up in market share by BAT Malaysia’s reduced-risk product segment, and support measures from the government towards the tobacco and vape industry.”
Malaysia recorded a slightly higher revenue of RM653mil in 4Q24, with a profit of RM48.96mil.
In a statement, the company said profit from operations increased by 20% to RM76.6mil compared to the same period last year, in line with higher sales volume for the quarter.
BAT Malaysia managing director Nedal Salem said its financial performance was within expectations, as the combustible business remains resilient despite changing market trends.
“We are optimistic of the company’s prospects for 2025, backed by Dunhill, the number one brand in Malaysia and will focus on growing Dunhill in the premium segment, along with other brands within our portfolio in the aspirational premium and VFM segments,” he said.
On Act 852, Nedal said he hopes the Health Ministry will continue having open dialogues with the industry.
“This will ensure the industry is clear on the guidelines and requirements in order to comply with the new regulations, as well as ensuring there is no disruption to the market.”
