- In conjunction with the national launch of “International No Tobacco Day”, further initiatives to curb smoking among Malaysian consumers were announced by Health Minister Datuk Seri Dr S. Subramaniam.

-  Quoting the 2011 Global Audit Tobacco Survey (GATS), the Health Minister pointed out that 23.1% of the population are smokers. We understand that the Health Ministry is aiming to reduce the number of smokers by 16%.

-  According to The Star, no-smoking zones will be expanded to include all rest and recreation (R&R) stops along highways by year-end. This is in addition to the sheltered walkways in the KL city centre which span 23km.

-  The smoke-free zones’ coverage area extends over a 3m radius around the designated nosmoking facility.

-  This recommendation is not entirely new as a similar proposal was made by the Health Ministry last year. Other reforms that had been proposed but not implemented include the prohibition of discounts to customers and a review of the tobacco manufacturers’ promotional activities. The latter involves regulating sponsorship activities and CSR programmes as well as evaluating the display of cigarettes in convenience stores.

-  That said, the Health Ministry had, effective Jan 1 2014, mandated the use of 6 new Pictorial Health Warnings (PHWs) (currently 12 in total) and increased its front panel size to 50% of the cigarette pack (from 40%) while maintaining the back panel’s 60% coverage. The first phase of its plan to reduce the maximum allowable nicotine and tar levels in cigarette sticks to 10mg/stick for nicotine and 1mg/stick for tar had also been put in place.

-  The penalty for flouting the latest mandate will result in a fine of RM250 to RM500. Those who fail to pay could be charged in court. If found guilty, they can be fined a maximum of RM10,000 or be imprisoned for up to 2 years.

-  While we are negative on these regulations given their potential downward pressure on already lacklustre legal volumes (1Q14: -8.4% YoY), we believe that the impact may be insignificant relative to the threat from illicit sticks. As with all rules and regulations, enforcement remains key.

-  No change to our FY14F-FY16F estimates for BAT or our assumption of a ~10% contraction in legal industry volumes. The stock remains a HOLD, with a DCF-derived fair value of RM62.00/share.

Source: AmeSecurities