British American Tobacco

[winston]

not vested

BAT sees 16.72% q-o-q net profit growth in 3Q, declares 21 sen dividend

by Arjuna Chandran Shankar

KUALA LUMPUR (Oct 28): Tobacco company British American Tobacco (Malaysia) Bhd (BAT) saw its net profit for the third quarter ended Sept 30, 2020 (3QFY20) rise 16.72% quarter-on-quarter (q-o-q) following higher sales.

In a bourse filing, the company announced that its 3QFY20 net profit was RM63.74 million, which was up from the RM54.61 million posted in the immediate preceding quarter (2QFY20) while revenue increased 14.81% in the same period to RM627.52 million.

BAT declared a dividend of 21 sen per share versus 29 sen a year earlier, bringing its cumulative dividends for the nine months ended Sept 30, 2020 (9MFY20) to 56 sen. Its latest quarterly dividend is the highest dividend that it has posted so far in its FY20.

BAT managing director Jonathan Reed pointed out that BAT's 3QFY20 marked its second consecutive quarter of financial growth.

"This momentum resulted from Dunhill's continued and stable leadership position within the Premium segment and a robustly positioned portfolio in the VFM (value-for-money) segment that includes the introduction of KYO, which has recorded a positive share of market since launching," he said.

"However, consumer affordability will continue to come under pressure due to the global pandemic, leading to further downtrading in the legal market and the growth of the tobacco and vaping black market," he added.

When compared to the corresponding quarter in the previous financial year, BAT's 3QFY20 net profit fell by 23.32% to RM63.74 million from RM83.13 million in 3QFY19.

9MFY20 net profit was down by 31.8% y-o-y at RM169.12 million, from RM248 million in 9MFY19. Revenue for the nine months was down 10.34% y-o-y at RM1.66 billion, from RM1.85 billion.

BAT noted that the declines were attributed to the contraction of the legal market as a result of the illicit cigarette volume, the growth of illegal vaping, market downgrading and lower duty-free sales following Covid-19 travel restrictions.

It stated that BAT's year-to-date performance is overshadowed by the growth of the tobacco and vaping black market, which grew from 69% to 70%.

It pointed out the growing concern over the tobacco black market that has also been increasing over the past quarter, from 60.5% to 64.5% share of the total market.

"This growth of [four percentage points] represents roughly RM80 million loss in government revenue for the quarter. Enforcement efforts are not able to effectively stem this crisis.

At the beginning of [3QFY20], the group launched a campaign — "STOP THE BLACK MARKET" — to drive urgent policy change to address this issue. The group sees the only possible approach being one that is holistic, requiring significant enforcement and structural excise reform," BAT added in its results announcement.

Reed said: "At 64.5%, Malaysia is already the No 1 tobacco black market in the world. The impact of the tobacco black market is far-reaching, it funds crime, fuels corruption and will hamper the country's economic recovery from the global Covid-19 pandemic."

He also noted that the upcoming Budget 2021 provides an opportunity for the government to demonstrate leadership to address the issue by tabling broader solutions that include strategic policy changes and taxation reforms.

BAT holds a 52.5% market share of the legal market in Malaysia.

The group stated that the legal domestic industry volume increased by 7% q-o-q following the volume recovery post Movement Control Order and the normalisation of consumer sales and trade inventories in the legal tobacco market.

BAT's volume was up by 14% q-o-q — outperforming the industry growth — due to the sales of its Dunhill brand and the introduction of KYO under its VFM segment.

BAT shares finished 0.4% or four sen lower at RM9.95 with a dividend yield of 9.78% and a market capitalisation of RM2.84 billion.

Source: The Edge

https://www.theedgemarkets.com/article/ ... n-dividend

[winston]

British American Tobacco (ROTH MK)
3Q20: After Five Years, BAT Finally Finds A Bottom

BAT’s 3Q20 results are deemed to be within expectations, but we have trimmed our 2020 earnings forecast on the back of the CMCO implementation.

Quarterly revenue grew yoy for the first time in five years, since the steep excise duty hike

We believe this signals a bottom for the industry.

The expected recovery from COVID-19 and resumption of travel bodes well for 2021.

BAT offers tremendous value with its valuation. Maintain BUY and target price of RM14.10.

Source: UOBKH

https://research.uobkayhian.com/content ... 5dd5a51374

[winston]

not vested

Better-than-expected

3Q20 results were above expectations given higher-than-expected sales volume as business activity resumed after the initial stages of MCO.

We raise our FY20 earnings estimate by 6% but leave FY21-FY22 earnings estimates unchanged.

As risks of growing illicit share and consumer down-trading continue, we believe that outlook remains challenging for the tobacco industry.

Maintain HOLD with a higher DCF-TP of MYR10.25 (WACC: 9.5%, LT growth: 1%).

Source: Maybank

https://factsetpdf.maybank-ke.com/PDF/1 ... ea0b15.pdf

[winston]

not vested

Underwhelming, with some silver lining

A sizeable 16% qoq jump in 3Q20 operating costs ate into BAT’s profitability, rendering the 9M20 core net profit at only 64% of our full-year forecast.

The yoy sales recovery in 3Q20 came at the expense of BAT’s gross margin; the group now relies more on lower-value cigarettes to drive sales.

Our DDM-based TP falls to RM12.65 after our DPS forecast cuts.

Still, BAT’s 34% tumble YTD puts its FY21-22F yields at a strong 8.3-9.1%.

TP: RM 12.65

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... 64523CEF8D

[winston]

not vested

Budget 2021: make it or break it

Finance Minister Tengku Dato’ Sri Zafrul Aziz told the New Straits Times in a 4 Nov interview that Malaysia’s Budget 2021 aimed to tackle illicit tobacco.

He, however, scotched expectations for a revision of excise duties – something that BAT has campaigned for to redress the affordability issue.

We believe that whatever is announced at the budget will carry little downside risk to BAT. Accumulate the stock for its FY21-22F yields that are over 8%.

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... BCB72FA73E

[winston]

Capitalise on these catalysts

An excise duty on vapes at 40 sen/ml was announced at Budget 2021. We estimate that it is more than 90% lower than the excise duty on cigarettes.

This effectively paves the way for the legalisation of vapes in Malaysia, opening a conduit for BAT to capitalise on vapes’ growing popularity.

The limitations on cigarette transshipments could also squeeze out smuggling activities. The Budget should be good for BAT; accumulate now

TP: RM12.65

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... 7CE745ECBA

[winston]

not vested

A second wind

We raise our FY21-22F EPS for British American Tobacco (BAT) by 4-5% as we increase our sales assumptions for Dunhill and Kyo.

Previously, we forecast Dunhill brand sales to fall yoy in FY21F. We now believe there could be some yoy growth after the supply disruption in 1Q20.

Our DDM-based TP rises to RM17.48 as we lift BAT’s terminal growth rate from 1% to 3% – in hopes that its upcoming vapes will revive its sales.

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... A29543BAB8

[winston]

not vested

British American Tobacco (ROTH MK)
4Q20: Dunhill Resurgence And Opex Discipline Lead To A Pleasant Surprise

BAT’s 4Q20 robust results sustain its turnaround for a third straight quarter with yoy
volume growth.

With the exception of downtrading, all other metrics point to a healthy
turnaround too.

Its valuation fairly prices in its prospects of structurally declining demand.

Its attractive dividend yield is balanced by its downtrending nature.

Maintain HOLD and target price of RM14.10. Entry: RM12.50.

Source: UOBKH

https://research.uobkayhian.com/content ... b85cc2e2b9

[winston]

not vested

British American Tobacco (ROTH MK)

Share Price: MYR13.16
Target Price: MYR12.60
Recommendation: Hold
Fairly valued

4QFY20 results were above our/consensus estimates on higher-than-expected sales volume.

BAT’s sales volume may continue rising on expectations for VFM segment growth while premium volumes remain stable.

However, the industry is in need to address consumer affordability.

Potential illicit share reduction also hinges on effective execution by relevant authorities.

Our FY21-FY22 earnings estimates are lifted by 9% p.a..

Rolling forward valuations, we derive a higher DCF-TP of MYR12.60.

Source: Maybank

https://factsetpdf.maybank-ke.com/PDF/2 ... 66c83c.pdf

[winston]

not vested

Another catalyst in the works?

While BAT is confident it could register sales growth in FY21, it knows the affordability issue would rear its ugly head again eventually.

It hopes the government would listen to tobacco players’ grouses and reduce cigarette retail prices. If this happens, it could be a game-changer for BAT.

Reiterate Add. For once in a long time, BAT has multiple catalysts waiting.

TP RM 18.23

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... 303B055350