Cigarette industry sales are on a perpetual down slide

Author: Admin Publish Date: 06-09-2019
Updated On:  18-11-2019

With the Central Bank being more dovish (interest rate cut) and the bleak outlook to economic growth, investing in quality dividend stocks isn’t a bad idea. Under this environment, British American Tobacco Malaysia Bhd (BAT), a higher yielding dividend stock, is offering a dividend yield of 7.7%. Is it time to buy?


BAT 7.7% dividend yield is unquestionably attractive. The company, which owns brand such as Dunhill, Peter Stuyvesant, Pall Mall, Kent and Rothmans has seen its share price falling 74.6% from RM72 in the year 2014 to RM18.34 as of 5 Sept 2019 as the increasing government tax, declining adult consumption of traditional tobacco products and the flood of illicit market for cigarettes have damaged the company’s growth potential.


JT International Bhd (JTI Malaysia) managing director Cormac O’Rourke said between 2018 and 2019, the illegal market for cigarettes and vape accounted for 70 per cent of total consumption in Malaysia.

In the chart above, we are seeing a steady increase for Malaysian to search for electronic cigarette on Google since the year 2014, which is also the year where BAT share price starts to plunge. Although an appealing dividend yield, buying into BAT certainly carry added risk when the industry tobacco sales are on a perpetual downslide.

In our view, wait for the government to start taking action on illicit cigarette and regulate the electronic cigarette industry. Before any of these actions materialize, the future of the traditional cigarette player is very bleak.

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