Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: KENANGA

KUALA LUMPUR: Kenanga Investment Research has recommended a Hold on BRITISH AMERICAN TOBACCO (M) [] Bhd with a fair value of RM40.10.

It said on Thursday, Aug 12 that news reports said that with effect from Sept 1, cigarette makers will have to pay half-a-sen for every stick sold as cess to the National and Tobacco Board (LKTN).

The new cess, which is an extra tax, is in addition to the Customs duty and comes with enforcement of the LKTN Act in April 2010.

The additional cost impact of 10 sen per pack from the new cess will have to be borne by cigarette manufacturers.

'Although the increment may be minimal, but nevertheless it will translate a decrease of 7% to our FY2011's full year net profit of RM721.6m (RM780.2m without cess) assuming no pass-through to consumers in a price increase.

'The impact on FY2010's bottomline is only 2% decrease to RM766.8m (RM780.2m without cess) as the new tax is only effective for the remaining four months of this year,' it said.

Kenanga Research believed the bottom line impact is moot given that any duty and/or excise hikes are usually passed on to end consumers, leaving tobacco manufacturers' bottomline intact.