KUALA LUMPUR: The new regulation imposed by the government on tobacco and vape industry is expected to present challenges for British American Tobacco (Malaysia) Bhd to sustain or grow its sales volume, said Affin Hwang Investment Bank.
Affin Hwang said BAT Malaysia's Vuse products contained 4.8ml and 10ml cartridges.
This exceeds the current maximum allowable volume of 3ml and the upcoming limit of 2ml per cartridge or disposable pod set by the government effective from Oct 1, 2026.
Similarly, the nicotine level, currently at 30mg/ml, must be reduced to comply with the new regulation of 20mg/ml starting Oct 1, 2025.
Affin Hwang expects BAT Malaysia to launch compliant Vuse products in the first quarter (Q1) 2025.
It also expects similar moves from other competitors.
"However, in the mid to long term, the ban on the public display of tobacco and vape products, effective April 1, 2025, is likely to further decrease legal combustible and vapour product volumes due to reduced brand visibility for new customers," it said in a note.
Affin Hwang said BAT Malaysia's 9M24 core net profit of RM130 million (-18 per cent year on year ) was above its full-year estimates due to lower-than-expected operating costs.
The firm believes that the lower operating costs stem from the company preparing to lower the e-liquid volumes of its products in response to the Control of Smoking Products for Public Health Act 2024 (Act 852).
This resulted in lower marketing costs for promoting the vapour product, as it will be irrelevant in the future.
Overall, Affin Hwang raised its 2024-26E earning per share by 6.6-19.5 per cent to account for lower-than-expected operating costs.
However, it maintained its "Sell" rating with a lower target price of RM5.36 (previously RM5.80).
"While Malaysian government measures are commendable for public health, they undermine the long-term growth prospects of the tobacco and vape industry, presenting challenges for BAT Malaysia to sustain or grow its sales volume," it said.