Tobacco ban to hit sales, footfall at convenience stores, mini-marts

New Straits Times

07-06-2025

KUALA LUMPUR: Convenience store chains and mini-marts across Malaysia are bracing for a significant hit from the impending ban on the open display of tobacco products, a regulatory move that could shake up revenue models heavily reliant on tobacco sales.
The Ministry of Health announced the tobacco display ban in October 2024, initially set for April 1, 2025, but now phased with full enforcement by Oct 1, 2025. Retailers must store tobacco and vape products in closed cabinets, not openly.
Analysts caution that major players like 7-Eleven Malaysia Holdings Bhd (SEM), which generates about 33 per cent of its total revenue from tobacco products, are particularly vulnerable.
Other chains like KK Super Mart and MyNews are also expected to be affected, though to varying degrees depending on their reliance on tobacco sales. In contrast, 99 Speedmart may be less impacted given its stronger emphasis on household essentials and grocery items.
"Tobacco purchases frequently trigger impulse buys of snacks, beverages, and other essentials. With the display ban, these secondary sales could decline, potentially reducing both store traffic and basket size," said an analyst who requested anonymity.
He added that convenience retailers will need to revamp their shelving layouts and possibly retrain staff, incurring compliance costs that could weigh heavily on smaller chains with fewer resources.
CIMB Securities Sdn Bhd said that despite a temporary reprieve, it warns that companies like SEM are not out of the woods.
"Although the delay offers SEM some near-term reprieve, the eventual enforcement of the ban may weigh on its top-line performance," CIMB cautioned in a research note, citing an expected decline in tobacco-related sales.
CIMB said that SEM continues to face mounting regulatory and cost challenges, despite reporting steady revenue growth for the first quarter of 2025 (Q1 2025).
SEM reported a 10.4 per cent year-on-year (YoY) increase in revenue for Q1 2025, largely driven by 7.1 per cent same-store sales growth. The growth was attributed to a low base effect from Q1 2024, longer operating hours, and an accelerated rollout of the modern 7-Café format.
However, rising costs are eroding gains. The Feb 1, 2025, nationwide minimum wage hike to RM1,700 and longer business hours pushed SEM's operating expenses up by 10.2 per cent YoY. As a result, EBITDA margin remained flat at 11.8 per cent, while core net profit edged up just 0.5 per cent YoY.
Looking ahead, CIMB expects QoQ earnings improvement in Q2 2025, helped by post-Ramadan consumer spending and continued expansion of 7-Café outlets. Margins are forecast to stay steady, supported by higher-margin fresh food sales and improved operating leverage.
"We understand that SEM remains committed to its store opening target (of 100 new outlets this year) and will be accelerating its store rollout in subsequent quarters to meet its target by end-Dec 2025," it said.
Despite the positive growth trajectory, CIMB maintains a 'Reduce' rating on the stock, with a target price of RM1.63, citing long-term challenges such as intensifying competition in the convenience retail space and mounting cost pressures.
SEM's share price has remained largely unchanged in 2025, fluctuating between RM1.96 and RM2.00, with a brief dip to RM1.90 in late January.
Notable shareholders include Classic Union Group Ltd (26.3 per cent), Berjaya Group founder Tan Sri Vincent Tan Chee Yioun (22.4 per cent), and PERKESO (4.6 per cent), with public investors holding 14 per cent.