Outlook still bad for BAT Malaysia

KUCHING: With a price increase seen across British American Tobacco Bhd’s ( BAT) product portfolio, analysts remain negative for BAT’s outlook as this will not alleviate the prevalent illicit market situation.

Kenanga Investment Bank Bhd (Kenanga Research) in its previous sin sector update said it anticipated a maximum increase in prices of 10 per cent across the product portfolio following the implementation of the new Sales and Services Tax (SST) structure.

“Following physical checks, we detected that a consistent 50 sen increase has been implemented,” it said yesterday, adding that new prices are as follow: premium brands at RM17.50 from RM17, aspirational premium brands at RM16 from RM15.50, and value-formoney at RM12.50 from RM12.

These price increases, it said, were similar to that made by most competing brands in the country post SST.

“We continue to anticipate that illicit trade volumes could increase due to the huge price gap between legal and illegal product market prices.

“Down-trading from premium to aspirational premium and value-for-money products could also be anticipated as consumers attempt to work around the issue of affordability.”

As recently reported, the Malaysian International Chamber of Commerce and Industry (MICCI) called for a special multi-agency task force to be set up to tackle the issues of smuggling and illicit trades. While Kenanga Research agreed that more aggressive enforcement could be necessary to address the problem, it stayed away from any positive expectations at the moment as delivering results has proven to be a challenge as in past regimes.

“With this update, we tweak our estimates to reflect a less narrow gap between the sales of premium and non- premium brands,” it added.

“We had earlier accounted for a much wider gap from the existing sales mix. Nonetheless, we still maintain our passive stance on legal volume growth. This resulted in a 3.2 and 4.2 per cent improvement in our FY18E/FY19E earnings estimates from our sector update revision.”

Thus, Kenanga Research maintained its underperform call for BAT but with a higher target price of RM28.25 per share from RM27.10 previously.