Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: MAYBANK
British American Tobacco (M) Bhd (BAT)
(April 23, RM42.90)
Maintain hold recommendation at RM42.78 with unchanged target price of RM43: Although its 1QFY10 (FY ends Dec 31) net profit declined by 6.8% year-on-year (y-o-y), this was in line with our expectations given that steps were taken in the quarter to mitigate the impact of withdrawal of 14-stick packets come June 2010. We maintain our hold call with a discounted cash flow-based target price of RM43 as we expect investors to be ""addicted'' to its rich dividend.
RM192 million 1Q10 net profit was in line with our and consensus forecasts, forming approximately 25% and 26% of full-year estimates respectively. This was 6.8% lower y-o-y although revenue increased by 1.3% y-o-y due to higher, front-loaded marketing expenses. Marketing expenses were higher to support the launch of its re-sealable RELOC 20-stick packets.
To counter the impact of the 14-stick ban, BAT introduced RELOC 20-stick packets, which can help prolong the freshness of cigarettes. BAT hopes that this would help prevent smokers from deserting its premium-priced brand, thus keeping the negative sales impact minimal.
As expected, the market share of illicit cigarettes fell, from a high of 38.7% in mid-09, to about 37% at end-2009. This and the stable market share of exceptionally low-priced cigarettes at about 8% suggest that the industry outlook is benign. We are forecasting industry sales volume growth of 2%, 1.5% and 1% in 2010-12 as opposed to the 11% and 2.4% declines in 2009 and 2008 respectively.
While earnings growth is forecast to be lacklustre, net dividend yields of 6%-7% remain attractive. In addition, longer-term shareholders should benefit from an additional dividend potential of 50 sen per share over the 2010-2012 period. - Maybank IB, April 23
This article appeared in The Edge Financial Daily, April 26, 2010.
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: MAYBANK
British American Tobacco (M) Bhd (BAT)
(April 23, RM42.90)
Maintain hold recommendation at RM42.78 with unchanged target price of RM43: Although its 1QFY10 (FY ends Dec 31) net profit declined by 6.8% year-on-year (y-o-y), this was in line with our expectations given that steps were taken in the quarter to mitigate the impact of withdrawal of 14-stick packets come June 2010. We maintain our hold call with a discounted cash flow-based target price of RM43 as we expect investors to be ""addicted'' to its rich dividend.
RM192 million 1Q10 net profit was in line with our and consensus forecasts, forming approximately 25% and 26% of full-year estimates respectively. This was 6.8% lower y-o-y although revenue increased by 1.3% y-o-y due to higher, front-loaded marketing expenses. Marketing expenses were higher to support the launch of its re-sealable RELOC 20-stick packets.
To counter the impact of the 14-stick ban, BAT introduced RELOC 20-stick packets, which can help prolong the freshness of cigarettes. BAT hopes that this would help prevent smokers from deserting its premium-priced brand, thus keeping the negative sales impact minimal.
As expected, the market share of illicit cigarettes fell, from a high of 38.7% in mid-09, to about 37% at end-2009. This and the stable market share of exceptionally low-priced cigarettes at about 8% suggest that the industry outlook is benign. We are forecasting industry sales volume growth of 2%, 1.5% and 1% in 2010-12 as opposed to the 11% and 2.4% declines in 2009 and 2008 respectively.
While earnings growth is forecast to be lacklustre, net dividend yields of 6%-7% remain attractive. In addition, longer-term shareholders should benefit from an additional dividend potential of 50 sen per share over the 2010-2012 period. - Maybank IB, April 23
This article appeared in The Edge Financial Daily, April 26, 2010.
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