KUALA LUMPUR (March 29): Any further cigarette price increase will lead to a decline in British American Tobacco (Malaysia) Bhd's (BAT) sales volume, according to CIMB Research.

Citing a local daily, the research house said Deputy Health Minister Datuk Seri Dr Hilmi Yahaya had stated that the government is considering increasing cigarette prices to RM21.50/pack from RM17/pack, which is a 26.5% increase.

CIMB Research said the government has always raised cigarette prices via higher excise duties in the past, which have resulted in lower sales volume of legal cigarettes for the industry.

"Based on our estimates, a 5% decline in BAT's sales volume is estimated to negatively affect our FY17 to FY19 earnings estimates by 5.2%," said CIMB research, adding that this is assuming the net increase in average selling prices is equivalent to the quantum of excise duty hike.

CIMB research also added that the price hike could also lead to a spike in illicit trade volumes, which stood at 51.2% in the fourth quarter of 2016.

Besides increasing cigarette prices, as measures to reduce the number of smokers, the government may also increase the legal age required to purchase cigarettes to 21 from 18 and is also planning to introduce plain packaging boxes, CIMB research added.

At Bursa Malaysia, BAT shares fell RM1.22 or 2.55% at 11.29am to RM46.68 for a market capitalisation of RM13.44 billion. The stock saw 76,500 shares traded.