Despite its first cigarettes tax delay in nine years with the not changed excise duties under Budget 2012, the Tobacco Company still has to deal with losing clients to tobacco smuggled business and the possibility of a cigarette price review by the State Government. While cigarette makers need not increase their cigarette selling price this time around, it can only enjoy its first absolute gain in almost a decade if company amount stop falling and starts to become stable.
Tobacco industries have had to increase cigarette prices for to protect their business against the rising excise duties in the past few years, causing them to lose their tobacco market share to illegal cigarette traders who can provide cost-sensitive clients with cheaper smokes products.
Illegal tobacco trade doubled starting with 2010, from 15% to 36.6% total cigs were sold.
CIMB Research declared that in its tobacco industry outlook report that the level of the rapid growth of illegal tobacco depended on the ability of the authorities to properly enforce at the important borders where contraband business took place.
“We hope this changes could be a scaring task given the level of illicit tobacco trade, which is one of the highest in the world,” it declared.
The research house stayed neutral on the sector, giving it credit for its resilient demand though the private consumption was expected to slow down.
“Unlike the demand for clients discretionary items such as cars, demand for consumer staples such as tobacco is disputable suitable and inelastic as the cigarettes smoking habit is hard to quit,” it added.
Nevertheless, it also explained that while tobacco consumption was quietly resilient, the require for the big tobacco companies’ smokes products could not run away state pressure too in a depressed economic environment as cigarette consumers still continue to purchase cheaper smoking products.
Based on word that the Government is considering a new proposal by the Confederation of Malaysian Tobacco Manufacturers to have the special licences of tobacco retailers who trade contrabands voided, CIMB reported it would turn positive on the sector if these new anti-smoking laws were taken to discourage retailers from selling unlawful cigarettes.
On the other hand, CIMB added that it would turn negative on the tobacco industry if the State Government decided to increase cigarettes taxes.