BAT shares fall 2% as earnings drop

PETALING JAYA: British American Tobacco (M) Bhd’s (BAT) shares shed 2%, or RM285.5mil in market capitalisation, after seeing its earnings for the nine months to September 2016 negatively impacted by weak sales volume and a decline in market share.

The cigarette manufacturer and retailer’s counter closed at RM49.24, down RM1. Yearto-date, the counter has lost 9.2%.

According to analysts, the earnings outlook for BAT remained cloudy due to the growing illicit trades in Malaysia and potential increase in excise duty on cigarettes.

CIMB Research, for one, noted that while the Customs had increased efforts to reduce illicit trade, contraband cigarettes rose to 49.9% of total Malaysia cigarette volume at end-May 16. That’s the highest in the world to-date and represented a stark increase from 36.9% in 2015.

“We believe this led to a sharp decline of 28.6% year-on-year (y-o-y) in legal market volumes in the nine months to September 2016, as smokers leaned towards contraband products for the cheap prices,” CIMB Research said.

“BAT’s volume decline during the period was even wider at 32.3% y-o-y; we attribute this to its premium product portfolio,” the brokerage added.

CIMB Research maintained its “reduce” recommendation on BAT, with an unchanged target price of RM50.