Just for the yields. With tobacco taxes likely to be frozen in the upcoming 2013 National Budget, legal cigarette volumes stand to gain as sales of both illicit cigarettes and ELPCs priced below the minimum of MYR7/box decline. The government's generous cash handouts should also support near-term consumption. Despite these positives, poor pricing power and escalating costs amid intense competition will likely drag tobacco company earnings. At 18.2x 2013 PER, the sector is fairly valued. Yields of 4.4% for BAT and 3.2% for JTI (which could offer a special dividend in 2014) are the only reasons to HOLD both stocks.

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Source: Maybank Research - 3 July 2012