- The press today reported that the Health Ministry is looking to impose stricter regulation or a blanket ban on vaping in Malaysia. The regulations include barring the use of vapers in restaurants and other public areas, similar to that for cigarettes.

- We are not surprised by this news given that the Health Ministry had been studying the effectiveness of e-cigarettes in reducing smoking and its effects on people since early 2012. (While there is a difference in e-cigarettes and vaping products, we assume them to be under one category, i.e. as substitutes for cigarettes).

- According to The Star, Malaysia’s vape industry is the biggest in Asia and second largest in the world after the United States. The vaping trend is popular among those below 18 years who are legally prevented from buying cigarettes.

- The half-a-billion industry is also fast growing, with about 1,000 vape shops catering to more than a million vapers. We understand that there are ~400 local brands selling vape devices (“Advanced Personal Vaporizers”/”Vape Pens” or “Vape Mods”) and juices (tobacco-free nicotine infused liquid ingredients). A bottle of juice reportedly costs between RM45-RM115.

- 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 a downtrend (YTD Aug: -10% YoY) in view of the weak consumer sentiment, price increases due to excise and GST, as well as the proliferation of ELPCs and illicit sticks.

- It remains to be seen whether this regulation can be effectively imposed given that the bulk of sales of vaping products are done online through social networks. Other sales points include stalls on five-foot ways and nightmarkets as well as mushrooming vape shops in commercial areas.

- No change to our NEUTRAL stance on the industry and HOLD on BAT (FV: RM69.50/share).

- In its recent briefing, BAT’s management had said that its parent company is committed to the development of products beyond traditional cigarettes. The latter’s interest in vaping is reflected by the launch of its e-cigarette product in the UK - Vype - and recent acquisition of a Polish vaping company, Chic Group. That said, we understand that there are no plans for the group to venture into the local vaping scene at present.

Source: AmeSecurities Research - 30 Oct 2015