BRITISH American Tobacco (M) Bhd, the only listed cigarette manufacturer in Bursa Malaysia today, has benefitted from measures introduced in Budget 2021 to curb/control contrabands with both its volume and brands enjoying improvements in recent times.
However, Kenanga Research remains wary of unresolved structural issues whereby stringent measures by the authorities to curb rampant contraband cigarettes is not good enough without proper execution.
“Any meaningful earnings recovery for the stock would only materialise with a sustained clampdown on the illegal cigarettes,” opined analyst Ahmad Ramzani Ramli in a results review.
“Moving forward, we reiterate our view that the group’s outlook should continue to be clouded by the rampant illicit tobacco issue with signs indicating such syndicates changing their modus operandi to circumvent the measures introduced in Budget 2021.”
On the bright side, however, Kenanga Research expects growth to be sustainable given BAT Malaysia’s introduction of less risky products to consumers, progressive regulation on vape products and strengthening of its value-for-money products
All-in-all, the research house upgraded BAT Malaysia to “market perform” (from “underperform” previously) while raising its target price to RM14.80 (from RM11.45 previously) as it rolls over the company’s valuation base to FY2022.
For its 1Q FY2021, BAT Malaysia saw a 22% growth in its profit from operations to RM87 mil from the same period last year. Its revenue for the quarter under review rose by 18% year-on-year (yoy) or RM85 mil to RM567 mil compared to a year ago.
“There is an early sign of positive recovery in domestic volumes due to the implementation of Budget 2021 measures such as tobacco transhipment restrictions, to tackle the tobacco black market,” commented BAT Malaysia’s managing director Jonathan Reed.
“However, it is concerning that criminal syndicates are changing their modus operandi to circumvent the measures introduced in Budget 2021. “
These gangs, according to Reed, are turning away from larger ports and moving to small jetties across the Malaysian coast to smuggle in the cigarettes.
“The significant price difference between expensive legal and cheap black market products must be closed to dis-incentivise criminal syndicates,” he added.
At 10.12am, BAT Malaysia is down 70 sen or 4.44% to RM15.06 with 1.09 million shares traded, thus valuing the company at RM4.3 mil. – June 1, 2021
