OSK Research is projecting an an eight per cent drop in tobacco industry volume which will result in tobacco manufacturers experiencing an earnings decline of between five and ten per cent in the year 2011.

The research house said its slightly higher natural attrition rate for tobacco consumption was mainly due to more smokers kicking the habit owing to the currently high prices of cigarettes. A steep hike in the excise duty of cigarettes, of as much as three sen per stick a week before 2011 budget, made tobacco manufacturers revise selling price by more than the quantum of duty increase in order to pass on the cost to consumers.
"In view of that, we expect the sector to see higher selling prices in downtrading to value-for-money brands from premium brands, a greater incidence of illicit trade and a greater likelihood of brand switching during 2011. We think the resulting selling prices of a pack of cigarettes, at MYR 10 (EUR 2.45), would curb the consumption and further encourage the proliferation of illicit cigarettes in 2011. Keeping our bearish view, we maintain our underweight recommendation for the sector," OSK added. (sra)