KUALA LUMPUR: The magnitude of the increase in cigarette tax is acceptable and should easily be absorbed by the consumers as it is the lowest price adjustment over the past seven years.
In a note yesterday, Alliance Research said price adjustments over the past seven years, except for 2011, ranged from 20 sen to 80 sen per 20-stick pack.
“This time, the one sen per stick price increase has not taken into account any potential volume loss as we foresee the legitimate market share loss due to 2-2.4 per cent price increase to be limited.
“We believe the new tax rise might not affect the legitimate industry volume in the near term,” it said.
Alliance Reasearch said another round of excise duty increase was likely in the first half of 2013.
“We believe the government is in need to replenish its coffer, after it had recently decided to cut exporty duty on crude palm oil, starting from Jan 1, 2013,” it said.
The research company has maintained its ‘sell’ call on British American Tobacco (M) Bhd at unchanged target price of RM49.60.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) said BAT’s volume would be hurt by the increase, albeit marginally, as smokers would opt for a cheaper source of cigarettes.
“Given the headstart from BAT on the price increase, we believe the other two players – Japan Tobacco International (JTI) and Philip Morris International – would follow the suit as well,” it said.
It said historically, JTI’s share market has fallen at a larger amount compared to BAT.
HLIB Research has maintained its ‘neutral’ call on the cigarette industry.
It maintained its ‘hold’ call on JTI and BAT at RM7.18 and RM53.10 respectively. — Bernama