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Positive times ahead for BAT (4162): BRITISH AMERICAN TOBACCO MALAYSIA BHD

PETALING JAYA: British American Tobacco Malaysia Bhd (BAT) is set to see improved earnings in 2021 and 2022, backed by higher sales volume of cigarettes.

TA Securities in a report yesterday said it is increasing BAT’s 2021 and 2022 earnings forecast by 3.5% and 7.6% respectively, in anticipation of better sales performance.

“We reckon that overall volume of legal cigarettes would have bottomed out in 2020 and would begin to grow in 2021 and beyond, supported by the government’s initiatives to crack down the illicit market that currently represents 64% of the tobacco market.

“Our revenue growth projection remains conservative at this juncture, with potential of upward adjustment upon seeing successful execution of announced initiatives by government task forces. Meanwhile, we take this opportunity to introduce our 2023 earnings projections of RM298.5mil.”

TA Securities noted that the government’s holistic approach to tackle illicit cigarette trade, alongside the move to legalise and regulate vape products could lead to a turnaround in the Malaysian legal tobacco market.

“Although duty-free sales will remain subdued as the regional and international travel restrictions are still being imposed in Malaysia, uplift of travel restrictions could be a probable catalyst in the second half of 2021.

“Cost base is now leaner post completion of restructuring efforts. We expect part of the savings could be allocated towards strategic brand investments, which would enhance BAT’s brand awareness.”

Maybank Investment Bank Research said it is raising its 2021 and 2022 earnings estimates by 9% per annum, upon adjusting for higher BAT volume assumptions resulting from its value-for-money segment.

The research house also projects industry volume growth of 3% per annum, after inputting a 5% decline in illicit share following Budget 2021 measures.

“Nevertheless, consumer affordability remains a key risk to the industry and the large price gap of legal (minimum RM12 per pack) and illicit cigarettes (RM3-to-RM4 per pack) needs to be addressed.

The Health Ministry increased the minimum retail price of cigarettes to RM12 per pack in November last year from RM10 per pack.

Kenanga Research meanwhile said structural issues still remain in the spotlight for BAT.

“In spite of Budget 2021 being a positive one for BAT, especially with more stringent measures imposed to curb rampant contraband cigarettes, we believe the key matter lies in execution and any meaningful earnings recovery for the stock would only materialise with a sustained clampdown on the illegal cigarettes.

“Moving forward, we reiterate our view that the group’s outlook should continue to be clouded by the rampant illicit tobacco issue, which may be further exacerbated by the weaker purchasing power caused by a disrupted economy, at least in the near-term.”

Kenanga Research is raising BAT’s 2021 earnings forecast upwards by 1.3%, on account of more generous assumptions for product volume growth.


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