October 18, 2011

RHB Research maintains Underperform on BAT

Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: RHBPrice Call: SELLTarget Price: 42.40



KUALA LUMPUR: RHB Research Institute is maintaining its Underperform rating on BRITISH AMERICAN TOBACCO (M) [] Bhd with a discounted cashflow-derived fair value of RM42.40.

It said on Tuesday, Oct 18'' that BAT was expected to release its 3QFY11 results on Thursday. It believed the 9MFY11 earnings would be in line with its estimates and come in at RM890 million to RM900 million, which would account for 76%-77% of its full-year forecasts.

'We do not discount the possibility that BAT increased its market share by 100 basis points to 200 basis points to 61.4%-61.5% driven by its Dunhill Switch/Boost brands for the premium segment and Pall Mall Ice for the VFM segment,' it said.

RHB Research said as there was no excise duty hike for cigarettes in the 2012 Budget, it expected 4QFY11 total industry volume to decline at a slower rate of 4%-5% on-year, which would bring FY11 TIV to a decline of 5%-6% on-year, in line with its estimates.

'Despite being spared an excise duty hike, we believe that the long-term earnings outlook remains cloudy for the industry. We expect that excise duties for cigarettes will continue to rise in the future,' it said.

BAT fell 28 sen to RM44.62 at midday on Tuesday.

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