July 22, 2011

CIMB Research has Underperform on BAT, TP RM42

Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: CIMBPrice Call: SELLTarget Price: 42.00



KUALA LUMPUR: CIMB Equities Research has an Underperform recommendation on BRITISH AMERICAN TOBACCO (M) [] Bhd as its 1H2011 core net profits were broadly within expectations.

It said on Friday, July 22, the profits accounted for 53% of its full-year forecast and 51% of consensus estimates.

The surprise was a special dividend of 30 sen, on top of the second interim dividend of 60 sen. This brings YTD dividends to RM1.50, which works out to 118% payout (vs our assumption of 93%).

'We are raising our FY11 DPS by 10% to account for the special dividend. But we maintain our earnings numbers in view of the rising regulatory risks in 2H, i.e. the possibility of an excise duty hike in 3Q which could hurt volumes.

'Our DDM-based end-11 target price remains unchanged at RM42 (COE 7.4%, LTG 0%). We maintain our UNDERPERFORM rating given the potential downside catalysts of 1) market share loss, 2) more regulatory negatives, and 3) investors' appetite for higher-beta stocks,' it said.

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