PETALING JAYA: Earnings should bottom out this year for British-American Tobacco (Malaysia) Bhd (BAT), led by its value-for-money products and vape brand Vuse, which is expected to gain market share, according to CGS International (CGSI).
The research unit is forecasting a 1% year-on-year decline in BAT’s core net profit for the year ending Dec 31, 2024, to be followed by a turnaround to grow 9.8% and 5.2% in 2025 and 2026 respectively, which will widen return-on-equity from a low of 51.1% to 57.1% in 2026.
The bright outlook also stemmed from BAT having launched its vapour products under the Vuse brand in the third quarter of last year, as the group invested in marketing and ad campaigns to promote as well as expand its outreach, said CGSI.
“BAT indicated that it intends to continue investing in Vuse to grow its brand awareness and market share.
“We believe this could contribute to net profit staying flat for FY24 as operating and marketing costs stay elevated,” the research unit said.
On the other hand, the securities predicted that as BAT’s sales and market share for Vuse grow, the cost per vape product is likely to decline, which could result in core net profit turning around and growing 9.8% in FY25 and 5.2% in FY26.
On a separate note, CGSI said the legal cigarette market in Malaysia is dominated by BAT, JT International Bhd and Philip Morris (M) Sdn Bhd.
Moreover, it observed a growing trend of the companies’ positioning their combustible cigarettes to be more affordable for the mass market, as well as introducing smoke-free alternatives.
The research unit revealed that Philip Morris International had invested more than US$10.7bil since 2008 in research, product development and production capacity for its smoke-free alternatives, with the most notable being its heated tobacco product called iQOS.
CGSI, citing the Malaysian Vape Chamber of Commerce, estimated that the retail value of Malaysia’s vape industry posted a three-year compounded annual growth rate of 15.3% from RM2.27bil in 2019 to RM3.48bil in 2022.