More robust prospects for BAT with potential war on illegal cigarettes

KUALA LUMPUR: Affin Hwang Capital Research has reiterated its view of potentially more robust prospects for British American Tobacco (M) Bhd given the commitment of the newly elected government to declare war on cigarette smuggling. 

The research house said illicit cigarette trade was the driving force behind the shar decline in earnings for legal tobacco companies.

"However, the industry’s prospects are changing. In the Pakatan Harapan government’s election manifesto, it has projected to recoup an additional RM2.6bn in cigarette excise duties by snuffing out the illicit trade, representing a crucial premise towards arriving at its estimated RM20bn in tax deficit following the abolishment of GST."

Affin Hwang says it believes BAT is set to regain its market share from the illicit trade with its earnings per share set to rise 29% in FY19E and another 16% in FY20E.

"This is based on the assumption that the legal industry will be able to recoup an additional 7% of market share in 2019 and a further 7% in 2020. 

"We have also employed the assumption that BAT’s market share in the industry will stay at 55% for FY19-21E."


The research house reaffirmed its buy call on the counter with a higher target price of RM43.10 from 37.70 previously.