-  An article in a local daily today reported that the government is mulling a ban on alternative smoking forms, specifically electronic cigarettes (e-cigarettes) and shisha.

-  We gather that the Health Ministry’s decision to prohibit the sale of e-cigarettes is a result of a study it began early last year to determine the effectiveness of e-cigarettes in reducing smoking addiction. Its minister, Datuk Seri Dr S. Subramaniam was quoted as saying that an announcement on the ban could be made soon. However, given the various legal challenges it faces in outlawing shisha sales, further research has to be carried out.

-  E-cigarettes are battery-operated products which are designed to vaporise liquid solutions (eg. nicotine) into mist. It acts as an inhaler and simulates the act of smoking. These products are often made to look like cigarettes, pens and pipes.

-  Just last week, the Consumer Association of Penang (CAP) had pushed the government for a ban on e-cigarettes given its popularity among youths due to the various flavourings used. In addition, no age limit was imposed on the sale of e-cigarettes (legal age for real cigarette purchases is 18 years).

-  While e-cigarettes have been touted by advocates as tobacco cessation aids and tobacco replacements, its benefits and risks remain largely unknown due to its short history. The World Health Organisation (WHO) has said that the safety of e-cigarettes has yet to be scientifically demonstrated and that the potential health risks on users remains undetermined.

-  At present, the sale of e-cigarettes is an offence under the Poisons Act 1952 and the Control of Drugs and Cosmetics Regulations 1984. Those found guilty of selling and distributing the product will be liable to a fine of no more than RM3,000, be jailed for no more than 2 years, or both.

-  We reckon that an outright ban on e-cigarettes would be mildly positive for local cigarette volumes which have been on the decline (1Q13: -5% YoY) following the proliferation of illicit whites (FY12: 23.6%), numerous price hikes (in October 2012 June 2013) and sale of cigarettes below the minimum price.

-  Nonetheless, we take stock of the popularity of e-cigarettes (in the US, e-cigarette revenues are expected to double this year) as well as difficulties in controlling sales (they can be easily purchased from online vendors) which may reduce its effectiveness.

-  No change to our forecasts at this juncture. Our NEUTRAL recommendation on the industry remains. We also maintain our HOLDs on both BAT (FV:RM62.00/share) and JTI (FV:RM7.20/share) for their decent dividend yields. 

Source: AmeSecurities