BAT ends FY18 within expectations, analysts present mixed views

KUCHING: British American Tobacco ( M) Bhd has release their financial year 2018 ( FY18) figures and its FY18 core net profit ( CNP) of RM46.8 million has come within expectations, meeting consensus full-year estimates at 106 per cent.

In a results note, the research arm of Kenanga Investment Bank Bhd ( Kenanga Research) reported that BAT’s FY18 revenue of RM2.82 billion was 3 per cent lower year over year (y- o-y) due to the decline in total industry volume of 4 per cent y- o-y, while the illicit cigarette trade continues to account for 63 per cent of the market share.

While it might sound like more people are turning to the illicit market, the research guides that the shrinking market suggests that illegal smokes too are on the decline and that its decline is likely due to stricter enforcement and punishment for those involved in illicit trade.

“Whi le this is in hopes that smokers would return to consuming legal products, affordability remains a concern with CY19 being fully exposed to the new SST-led prices and down-trading.

“Recall that in November 2018, prices per pack were raised by 40.0 sen on this tax,” Kenanga Research said.

Additionally, the smoking ban in eateries could further di scourage smoking in consumers. To address to decrease in total industry volume, Kenanga Research reports that BAT’s management is hopeful to offer alternative e products such as e- cigarettes.

“But this could be a long-term endeavour due to the process involved to obtain the necessary approvals and permits,” said the research arm.

De spi te the expe c t ed FY18 f igures BAT has a n n ou n c e d , Ke n a n g a Research is maintaining their ‘Underperform’ call on the stock as they believe current trading valuations are stretched given the lack of favourable catalysts to boost the legal volume growth.

Nevertheless, the research arm is ascribing a higher valuation of 20.0- fold FY19E price earnings ratio ( PER) from 18.0 - fold FY19E PER, which is close to the stock’s - 1.0 standard deviation over its 3-year mean.

“This is in lieu of the better operating environment aligned with the management’s continuous initiatives to review and rationalise expenses,” guided the research arm.