Kenanga Research said the sales volume of the tobacco products manufacturer would sustain it going into FY23.
PETALING JAYA: Taking a cue from its financial year 2022 (FY22) results, which met expectations, some analysts are upbeat about British American Tobacco (M) Bhd
’s (BAT) sales volume in FY23.
Kenanga Research said the sales volume of the tobacco products manufacturer would sustain it going into FY23.
However, it remained cautious given the continued trend of downtrading within the market.
“If inflation continues to bite into consumer spending, the group could see a further increase in downtrading from its higher margin segments or even to black market cigarettes which could jeopardise earnings.
“Given the group controls the lion’s share of the premium segment, its leading Dunhill brand could be at risk of losing volume if consumer sentiment worsens,” said Kenanga in a report yesterday.
In the fourth quarter ended Dec 31, 2022 BAT posted a net profit of MR61.73mil, bringing FY22’s profits to RM262.5mil – down 7.8% from RM284.9mil a year ago.
Full year revenue, meanwhile, fell slightly on market share loss following the delisting of the Kent and Pall Mall product lines.
The research firm said it observed a 1% decline in premium market volume due to increase in downtrading during FY22.
On the other hand, the value-for-money (VFM) segment grew, albeit slightly, with the group’s products capturing 35.3% of overall market share.
Following its FY22 results, Kenanga had raised its FY23 forecast net profit by 5% and lifted the stock’s target price to RM12 from RM11.45 before. However it maintained the firm’s “market perform” rating.
Government regulation also painted a slightly brighter picture for FY23, added Kenanga.
“While Budget 2023 is pending retabling, the group was largely positive on the measures proposed in the previous version. Subsidies and cash handouts would support consumer spending and the regulations by the multi action task force were largely in line with those proposed during the group’s meetings with government officials,” said the research firm.
It pointed out that during 3Q22, the country saw a 1.6 percentage point decrease in illicit volume following an uptick of inland seizures. The group is also not immediately concerned about the generational ban on cigarettes, said Kenanga.
However, CGS-CIMB Research is less upbeat, cutting FY23 to FY24 forecast earnings per share by 3% to 4% to reflect crimped margins from higher sales of VFM cigarettes.
“Until vapes are legalised, we keep our long-term growth rate at zero, as we believe there is a ceiling to how much cigarette sales can grow in Malaysia,” said the research house.
Meanwhile, TA Research has a “sell” call on the stock, pointing out that the operating outlook remains challenging for BAT.
“With the shrinking prevalence of Malaysian cigarette smokers and increase in popularity of e-cigarettes, the delay in legalisation of the vapour market via the Tobacco Bill would drag the group’s earnings in the longer term as combustible cigarettes remain the major source of revenue for the group,” said TA Research.
