CONSUMER

TOBACCO SECTOR
15 Mar 2016

Tighter regulations coming up

NEUTRAL

Sector report

(Maintained)

Cheryl Tan, CFA

cheryl-tan@ambankgroup.com
Rationale for report: Sector update

Quick Take

+603 2036 2333

Published by
AmInvestment Bank Bhd (23742-V)
(A member of the AmBank Group)
15th Floor Bangunan AmBank Group
55 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: ( 0 3 ) 2 0 7 0 - 2 4 4 4 ( r e s e a r c h )
Fax: (03)2078-3162

According to The Star, the Health Ministry, under the purview of Datuk Seri Dr S.
Subramaniam, has further underlined its tough stance against smoking by introducing new
regulations for the industry under a National Strategic Plan for Tobacco Control.
The plan, which was formed through consultations with several ministries, health institutes,
universities, NGOs and the Malaysian Council for Tobacco Control, will see the establishment
of a Tobacco Control and Smoking Bill.
New measures proposed under this upcoming Bill include:
o the expansion of no-smoking zones to cover:
-

all hotels by end-2016, public and recreational parks by 2017, non-air conditioned
restaurants by 2018, all enclosed public areas by 2019 and open public spaces by
2020;

all public events held at open stadiums, official processions and government events,
cars with children and public beaches further out;

o plans to further hike the excise duty on tobacco products;

o greater enforcement against the sale of illicits by increasing the number of its enforcement
officers;
o indirect advertising or promotions of tobacco products at sales counters (i.e. restrictions
on point-of-sale advertising); and
o launch of the IM FREE programme at schools to ensure a smoke-free generation.

In addition to the above, there have also been talks of raising the minimum pack price of
RM9.00/pack to RM10.00/share and introduction of plain packaging.
We are not surprised by these proposals given Malaysias bid to comply with WHOs
Framework Convention on Tobacco Control (FCTC), of which it has been a signatory since
2003. These reforms are also in line with the governments aim to reduce the prevalence of
tobacco smoking by 30% come 2025.
Pending further details, we make no changes to our FY16F-FY18F earnings estimates and fair
value of RM54.70/share for British American Tobacco (M) (BAT). Our HOLD call also remains.
While regulations are a threat to the domestic tobacco industry, a more pressing problem for
the sector would be the rapidly shrinking legitimate TIV pie. Immediate threats facing legal
cigarette volumes include: (1) the steep excise duty increase levied in November 2015 (+36%);
(2) competition from cigarette substitutes; and (3) ongoing threat from illicits.
The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in
this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell
or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd may from time to time have a position
in or with the securities mentioned herein. Members of the AmBank Group and their affiliates may provide services to any company
and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources
that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and
reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted
for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of
this date and are subject to change without notice.

Printed by
AmInvestment Bank Bhd (23742-V)
(A member of the AmBank Group)
15th Floor Bangunan AmBank Group
55 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: ( 0 3 ) 2 0 7 0 - 2 4 4 4 ( r e s e a r c h )
Fax: (03)2078-3162

For AmInvestment Bank Bhd

Benny Chew
SR VP Equity Research