Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
JT International Bhd
(Aug 18, RM6.80)
Maintain neutral at 6.83 with revised target price of RM7.27 (from RM7.30): JTI's 2QFY10 revenue came in at RM306.6 million (+2.7% year-on-year, +5.5% quarter-on-quarter) while earnings amounted to RM30.5 million (-9.2% y-o-y, -11.7% q-o-q). During 1H, earnings totalled RM65 million, down 8.9% y-o-y while volume fell 7.3% y-o-y as the 11.2% rise in Mild Seven sales was more than offset by Winston's sales decline of 13.3%. Owing to higher costs from new launches, margins were lower, with earnings before interest and tax (Ebit) and net amounts at 14.6% and 10.9% (1HFY10 at 15.7% and 11.7%). At 54.3% of our full-year estimates, the 1H results were within our expectations but below consensus (47.3%).
Despite stricter enforcement on minimum pricing in the sub-value for money (VFM) segment, Winston's sales volume in 2Q still fell by 11.1%. We believe that smokers switched from the sub-VFM to illicit cigarettes given their lower pricing and availability, instead of turning to VFMs. As a result, management expects the next wave of illicit trade figures to come in higher. To recap, illicit trade from October to December 2010 stood at 32% (2010: 36.3%), which was probably artificially lower since customers preferred the sub-VFM segment which previously did not adhere to minimum pricing requirements.
Premium brand Mild Seven showed a strong 14.8% y-o-y volume growth in 2Q. To further capitalise on the brand, JTI recently launched a menthol variant. We believe this will help JTI capture the male segment among menthol smokers. In our view, there should be minimal cannibalisation to its Salem (also menthol variant) brand as it is perceived to be for female smokers. We note that competition within the menthol segment has been intensifying, with rival British American Tobacco (Malaysia) Bhd ('neutral', fair value: RM43.41) also recently launching the Dunhill Boost & Switch and Pall Mall Ice.
We are assuming that excise duties will be raised by 30 sen per pack (3% to 3.5%) this year, which should impact the VFM segment the most given the high price sensitivity of its smokers. While we may see some substitution from premium to VFM cigarettes as the former will breach the RM10 per pack mark, this would be insufficient to cushion the latter's volume decline. With high illicit trade still plaguing the industry, any excise duty hike will hit the VFM segment hard. ' OSK Research, Aug 18
This article appeared in The Edge Financial Daily, August 19, 2011.
Company Name: JT INTERNATIONAL BHD
| Research House: OSK | Price Call: HOLD | Target Price: 7.27 |
JT International Bhd
(Aug 18, RM6.80)
Maintain neutral at 6.83 with revised target price of RM7.27 (from RM7.30): JTI's 2QFY10 revenue came in at RM306.6 million (+2.7% year-on-year, +5.5% quarter-on-quarter) while earnings amounted to RM30.5 million (-9.2% y-o-y, -11.7% q-o-q). During 1H, earnings totalled RM65 million, down 8.9% y-o-y while volume fell 7.3% y-o-y as the 11.2% rise in Mild Seven sales was more than offset by Winston's sales decline of 13.3%. Owing to higher costs from new launches, margins were lower, with earnings before interest and tax (Ebit) and net amounts at 14.6% and 10.9% (1HFY10 at 15.7% and 11.7%). At 54.3% of our full-year estimates, the 1H results were within our expectations but below consensus (47.3%).
Despite stricter enforcement on minimum pricing in the sub-value for money (VFM) segment, Winston's sales volume in 2Q still fell by 11.1%. We believe that smokers switched from the sub-VFM to illicit cigarettes given their lower pricing and availability, instead of turning to VFMs. As a result, management expects the next wave of illicit trade figures to come in higher. To recap, illicit trade from October to December 2010 stood at 32% (2010: 36.3%), which was probably artificially lower since customers preferred the sub-VFM segment which previously did not adhere to minimum pricing requirements.
Premium brand Mild Seven showed a strong 14.8% y-o-y volume growth in 2Q. To further capitalise on the brand, JTI recently launched a menthol variant. We believe this will help JTI capture the male segment among menthol smokers. In our view, there should be minimal cannibalisation to its Salem (also menthol variant) brand as it is perceived to be for female smokers. We note that competition within the menthol segment has been intensifying, with rival British American Tobacco (Malaysia) Bhd ('neutral', fair value: RM43.41) also recently launching the Dunhill Boost & Switch and Pall Mall Ice.
We are assuming that excise duties will be raised by 30 sen per pack (3% to 3.5%) this year, which should impact the VFM segment the most given the high price sensitivity of its smokers. While we may see some substitution from premium to VFM cigarettes as the former will breach the RM10 per pack mark, this would be insufficient to cushion the latter's volume decline. With high illicit trade still plaguing the industry, any excise duty hike will hit the VFM segment hard. ' OSK Research, Aug 18
This article appeared in The Edge Financial Daily, August 19, 2011.
No comments:
Post a Comment