Vape Sector Can Be An Economic Game Changer For Malaysia

KUALA LUMPUR – Malaysia can emerge as a significant player in the global vape market with the right regulatory framework to draw investment from investors in the vape industry, said investment and economic analyst, Pankaj Kumar, in a press statement today. 

Pankaj’s comments came on the back his analysis on Chinese-based e-vapour company, RLX Technology (RLX).

“Listed on the New York Stock Exchange early this year, RLX’s market value today is US$14.1 billion or RM58.4 billion. The company is today China’s largest e-cigarette brand.”

“According to China’s Insight Consultancy, RLX has gained a 62.6% market share in just three years history. RLX’s revenue leapfrogged 147% in 2020 to reach US$585mil, which is more than 30 times of its first full year of business operations in 2018. In its 1Q of 2021 report card, RLX’s revenue jumped 48.2% y-o-y to reach US$366.1mil or RM1.52bil. The business operating margin was at 46%. On a non-GAAP accounting basis, RLX showed a net income of US$93.2mil for the 1Q period,” Pankaj elaborated.

According to Pankaj, going forward, with a very low penetration rate, RLX growth is expected to remain spectacular as there is so much potential in this industry globally.

Investment and economic analyst, Pankaj Kumar

“Statistics out of China show that the world’s most populous country, which has some 308 million smokers, has an e-cigarette penetration rate of just 1.2%, leaving plenty of growth headway for RLX. The remarkable journey that the company has undergone is something that any Malaysian company could do as well.”

According to Pankaj, the vape sector drew his attention following a new study conducted by Grand View Research, Inc. that projected the global vape market size to reach USD67.31 billion (RM279.10 billion) by 2027, registering a revenue-based CAGR of 23.8% from 2020 to 2027.

“According to the Malaysian Vape Chamber of Commerce, there are more than 330 manufactures and importers in the country, of which some 28% are already exporting their end products overseas. The vape industry employs more than 3,000 retailers and employs more than 15,000 Malaysians.”

“Being truly a thriving and growing industry, the industry itself can be a significant economic contributor to Malaysia’s growth. Just like China, Malaysia’s less than 5% penetration rate and coupled with the significant growth that the global market is experiencing as well, the vape industry is poised for explosive growth in the years ahead.”

“In addition, there is growing demand in Southeast Asia, as more countries in this region are moving towards regulations such as Philippines and Indonesia. It is foreseeable that more Chinese companies in the vape industry would make the strategic move to expand their manufacturing footprint outside of China to setup up regional manufacturing hub to grow its consumer base in this region,” he added.

For this reason, Pankaj believes that Malaysia needs to step on the regulatory front and be prepared for the strategic expansion from the Chinese-vape companies.

“First, is to take the step to regulate the vape industry. Investors are more ready to invest in a country when the Government maps out regulation for the industry as this provides certainty on the industry and to the investors. Second, is to make sure that the products that are sold meet safety and quality standards. This would give confidence to consumers that the products are regulated and safe to be used. Third, is to provide a level playing field on taxes imposed as presently only liquids for e-cigarette that are zero nicotine-based, attracts excise duty of 40 sen/ml while nicotine-based liquids, which is more than 95% of the market, is left untaxed and unregulated.”

“With regulations, the government will be able to gain significantly in terms of not only tax revenue but draw investments from international investors that are looking to expand.”

“With better and greater regulatory control, Malaysia could emerge as a magnate for the vape industry to thrive and create an oasis of prosperity for serious market players. Ultimately, Malaysia can emerge as an investment destination for foreign direct investment in this area as the research and development of different and sophisticated liquids is endless,” Pankaj concluded.

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