Budget 2021 carries little downside risk to BAT, says CGS-CIMB
KUALA LUMPUR (Nov 6): CGS-CIMB Research said any announcements to be made during Budget 2021 this evening will carry little downside risk to British American Tobacco (Malaysia) Bhd (BAT).
The research house said in a note today the illegal tobacco trade took the centre stage in the New Straits Times (NST) issue on Wednesday, which carried two reports pertaining to how Malaysia’s Budget 2021 can help BAT to overcome one of its greater challenges.
“We are of the view that whatever is announced for the tobacco industry under Budget 2021 will at worst be a neutral development. We believe the government is cognisant that it cannot afford to deter smokers from legal cigarettes any further.
“We see that BAT is trading at an opportune level for investors to accumulate [its shares]. With little downside risk at play, our DDM (dividend discount model)-based TP (target price) of RM12.65 offers a potential 24.3% upside and FY21- 22F yields of 8.1%-8.9% (forecasts for the financial years ending Dec 31, 2021 and 2022 respectively). Vapes’ legalisation is a major upside risk,” said CGS-CIMB analyst Kamarul Anwar as he reiterated his "add" call for BAT.
Kamarul Anwar said the research house had consistently highlighted the affordability issue of legal cigarettes as the reason why a majority of Malaysian smokers turn to contraband cigarettes, so much so that the overall illicit market share, including alternative tobacco products such as electronic cigarettes and vaporiser products, had vaulted to 65%.
“That being said, we have never been hopeful for an excise duty cut. Doing so could send a wrong signal to the public that the government encourages smoking. Also, we are lukewarm about the idea of increasing enforcement. Previous governments have said the same thing, yet the illicit cigarette trade continues to thrive,” he added.
At the 12.30pm noon break today, shares in BAT had risen two sen or 0.2% to RM10.20, bringing its market capitalisation to RM2.92 billion. It saw some 207,500 shares traded.