Malaysia: Price Rise May Smoke out Demand

Source from:  Straits Times (my)  09/15/2014

Cigarette sales are expected to shrink this year after Malaysia's top two tobacco companies raised their prices for the second time in 12 months, analysts said.

The price hike would also bolster demand for cheaper illicit cigarettes, they said, adding that demand will further drop by five per cent next year.

Unlisted JT International Bhd (JTI) yesterday announced that the price of its four leading brands — Mevius, Salem, Winston and Camel — will be raised effective today.

Market leader British American Tobacco (Malaysia) Bhd had on Monday announced price hikes for its premium and value-for-money packs.

The companies attributed the price rise to challenging operating environment and escalating cost pressures.

Nevertheless, analysts expect the tobacco sector to outperform the general consumer space on both earnings growth and share price performance.

UOB Kay Hian expects the proliferation of illicit cigarettes, which cost half as much of legal cigarettes, to increase among price-sensitive smokers.

"Based on recent surveys, illicit trades have shot up to a historical high of of 38.9 per cent as of December 2013, as consumers reacted to 2013's hefty 14-17 per cent duty excise-driven price hike," it noted.

UOB Kay Hian said even with the price increase, BAT's market share should remain resilient, adding that BAT's 2014 net profit is expected to expand 14 per cent on higher demand. The company controls 62 per cent market share of duty-paid cigarettes. Enditem