ROTH’s  9M13  results  were  largely  within  expectations,  while,  on  a quarterly  basis,  the  company  saw  3Q13  earnings  rise  18%  y-o-y  on lower  opex.  That  said,  we  raise  our  FY13/FY14  net  profit  forecasts  by 7%/18% on the back of higher ASP – the result of the recent duty hike. In turn, we raise ROTH’s FV to MYR57.06 (from MYR54.60). However, we maintain our SELL call on its fading dividend yield appeal. 
 
- Within expectations. ROTH’s 9M13 net profit of MYR634m (+6% y-o-y) was  largely  within  expectations,  making  up  79%/78%  of  our/consensus full-year  estimates.  Its  3Q13  revenue  inched  up  1%  y-o-y/q-o-q  on  the back of higher ASPs. Recall that ROTH raised its cigarette prices by 30 sen  per  20-stick  pack  in  early  June  and  this  has  helped  to  mitigate  its 
depressed  sales  volume  (-10%  y-o-y;  -7%  q-o-q).  Its  3Q13  net  profit, however, rose by 18% y-o-y (+4% q-o-q), fuelled by lower opex (-24% y-o-y;  +16%  q-o-q).  A  third  interim  dividend  per  share  of  68  sen  was declared.

- Briefing  highlights.  From  the  analyst  briefing  yesterday,  we  gathered that ROTH’s competitiveness in the industry remains intact (see pg 3 for further details).

- Outlook. We foresee a significant slowdown  in industry volume growth, accompanied  by  a  proliferation  in  illicit  cigarettes,  as  a  result  of  the increased pressure on consumers’ disposal income. This is consequent from the fuel subsidy reduction and the possible implementation of GST.

- Forecasts  and  risks.  We  raise  our  FY13/FY14  net  profit  forecasts  by 7%/18%  to  MYR853m/MYR934m,  after  incorporating  the  higher  ASPs and  toning  down  our  FY13/FY14  sales  volume  assumption  by  4%/11% to  8.4bn/7.8bn  sticks.  The key  risks  to our  forecasts  include:  i) stronger sales volume, and iii) lower-than-expected raw materials cost.

- Valuation  and  recommendation.  We  raise ROTH’s FV to MYR57.06 (from MYR54.60), based on FCFF valuation (WACC: 6%; TG: 1%). We continue  to  advocate  a  SELL  recommendation  on  the  stock,  given  that its  dividend  yield  appeal  is  fading  under  the  higher  than  normal  bond yield environment.

Source: RHB