KUALA LUMPUR: The regularisation on vapes by the government may bring a desirable outcome for tobacco players like British American Tobacco (Malaysia) Bhd (BAT), forecasts TA Securities Holding Bhd.
As the government is expected table the regularisation plan on vape, e-cigarettes and shisha by month-end, the research house believe proper and clear framework over the alternative tobacco products could enable BAT to introduce its principal’s flagship vape products such as Vype.
Industry players estimate that 10 per cent of smokers use vape products and the regularisation plan can promise a higher growth momentum which was untapped due to legality.
"Alternatively, a revised regulation plan could entail some forms of governance over the ‘illegal vape’, hence keeping the space in check.
"Through our findings, we opine that using vape products ie Vype and its corresponding cartridge may be a relatively economical option to users. Cost of having Vype could possibly be lower than tobacco heating product (THP) products and legal traditional cigarettes, thus potentially relief BAT from the affordability plague that it currently encounters,” the research house said in a note today.
TA Securities said since incurrence of marketing spends are within control of BAT’s management team who has thus far shown great success in optimising costs, the research house believe BAT would be able to deliver a strong route-to-market strategy while having operating expenses maintained in a manageable level.
“As such, we believe investor’s appetite for high dividend-paying stocks would soon grow thus putting BAT back into the spotlight for dividend play,” the research house said.
Given BAT’s history of sticking with its minimum 90 per cent dividend payout ratio, TA Securities forecast this would translate into an attractive financial year (FY) 2019/20/21 dividend yield of 5.7/5.9/5.9 per cent respectively.
The research house maintains a Buy call for BAT with a target price of RM28.29 from the current RM23.00.