- The Health Ministry is reportedly considering several
proposals aimed at discouraging smoking, according to an English-language daily
which quoted an anonymous government source.
- According to the article, the Health Ministry would be
seeking public feedback for the proposed amendments in the next 2 weeks. Among
these are:-
1) Size of pictorial
health warning (PHW) to be increased by 10% from current size. This would bring
the ratio to 50:50, from 60:40 currently. The Ministry is also reportedly looking
into the plain packaging model which would be implemented in Australia from
2013 onwards.
2) Additional health
warning requirement with the words
“Merokok Membahayakan Kesihatan” to be printed on every cigarette stick.
3) Reduction in
nicotine levels by 33% (from 1.5mg/stick to 1mg/stick), and tar content by 50%
( from 20mg/stick to 10mg/stick) over the long haul. Though the government is
proposing a gradual implementation (1.25mg for nicotine and 15mg for tar content),
it is learnt that the tobacco manufacturers have requested a smaller reduction
of 1.3mg for nicotine and 15mg for tar content from 2014, and a 2018 timeline
to meet the government’s long-term target.
4) No-smoking areas
of a building to include its five-foot way or the entire area of a premise
within a perimeter wall.
- We view the proposed regulatory development as negative
for the tobacco industry as the net effect will see further downward pressure
on legitimate TIV growth.
- While we think that manufacturers may be able to absorb
the additional costs involved with the implementation, our greatest concern is
a rise in illicits by consumers who may be turned off by the enhanced health
warnings and changes to cigarette taste.
- We maintain our TIV growth forecast at 0%-2% for 2012-2013
for now, pending further concrete developments.
- No change to our Hold recommendations on both BAT (FV:
RM56.60/share) and JTI (FV: RM7.20/share) given the stocks’ decent dividend
yields of 4%-5% as premised on generous dividend payouts of 50%-90% per annum.
Source: AmeSecurities
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