Journey to Wealth
British American Tobacco - 2Q12 within expectations
Period 2Q12
Actual vs. Expectations 1H12 net profit ('NP') of RM415.4m was within expectations, making up 55% and 57% of the street's and our expectations of RM747m and RM727m, respectively.
Dividends A second interim NDPS of 65 sen was declared, which totalled up to 130 sen or 52% of our full year FY12E NDPS of 250 sen (4.4% yield and 89% payout ratio of 2H12 EPS of 146 sen).
Key Results Highlights 2Q12 NP improved by 14% QoQ and 19% YoY. This was mainly boosted by the relatively higher other operating income and lower marketing expenses due to the timing of brand and trade related activities.
1H12 NP increased 15% YoY despite the flattish sales. This increase was mainly attributable to the higher volume of contract manufacturing business (1H11: 1.9b sticks vs. 1H12: 3.6b sticks), which increased significantly by 89% YoY.
All in, the NP margin expanded 1.9 ppt to 19.7% in 1H12.
YTD, the volume increased slightly by 1.6% YoY, which was still slightly lower than the industry's volume increase of 3.9%. The improvement was due to zero excise and the enforcement taken by Government agencies in curbing illegal cigarettes and sub-value for money ('sub-VFM') brands selling below the Government mandated price.
However, the overall market share of BAT (measured by value) improved 2.2 ppt to 62.3% due to its strong market position in premium segment.
Outlook Continuous enforcement activities against sub-VFM selling below the Government mandated minimum price as well as the curbing of illegal cigarettes will continue to benefit BAT especially in gaining market share in the premium segment.
Change to Forecasts Maintaining our FY12E-FY13E earnings estimates of RM727.3m and RM728.9m respectively.
Rating Maintain MARKET PERFORM
Valuation Maintaining our TP of RM58.70, which is based on 21.6x PER over FY13 EPS of 255 sen.
Risks The Government may potentially increase excise duty after the general election, which may have a negative impact to BAT or legal tobacco industry.
Source: Kenanga
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