British American Tobacco; Hold; RM63.54
Price Target: RM62.00 (Prev RM60.00); ROTH MK

Effective today, BAT will be raising its cigarette prices by 3% across its brands in a bid to ease off its increasing operating costs due to inflationary pressure and high labour and input costs. The revised prices are as below (based on per pack of 20s):

• RM10.50 for Dunhill, Kent and Benson & Hedges
• RM9.00 for Peter Stuyvesant and Pall Mall
• RM10.90 for Pall Mall Plain, Lucky Strike and Rothmans International

We are neutral on the minimal price hike as the higher revenue to be generated from the price hike could be mostly offset by rising costs. In addition, sales volume could also be affected by the existing high level of illicit cigarette trades given the growing prices differentials. We have revised our FY13-15 net income forecast by 6% to RM893m-RM915m, premised on: i) 3% increase in average selling price; and ii) 5% sales volume drop.

We maintain our HOLD recommendation with higher RM62.00 TP (from RM60.00) based on DCF-valuation.

Source: HwangDBS Research - 3 Jun 2013