Forum : Stock: [BAT]: BRITISH AMERICAN TOBACCO (M)

Getting tougher
BAT faces an uphill task domestically due to the increase in excise duty
and weaker consumer spending. Its contract manufacturing is also
experiencing declining volumes. JTI is also expected to be a more
aggressive competitor now that it is a private entity.

Given the dim outlook, we maintain
our Reduce rating on BAT. The
operating environment going forward
will be tough due to the weaker
consumer spending and high illicit
trade. Its dividend yield is also not
compelling in view of the risks. Switch
to F&B or REITs for yields.
High selling price dampens
sales volume...
Industry sales volumes have been
weak due to the increase in excise
duties as consumers downtrade to
cheaper alternatives, typically illicit
cigarettes. The excise duty increase in
Sep, two years after the last hike,
further dampened sales, especially
since consumers are now also facing
higher living costs due to the
impending implementation of the
GST and the likelihood of gradual
subsidy cuts. To recap, the
government unexpectedly announced
a sharp 14% increase in excise duty in
Sep 2013 and BAT responded by
raising its selling prices – the third
time in 11 months – by RM1.50 per
pack for both premium and
value-for-money (VFM) segments.
...But helped to increase net
profit
The sharp increase in selling prices
indeed helped to improve profit. In
1QFY14, while its domestic and
contract manufacturing volumes fell
by 7.9% and 23% yoy, respectively, its
net profit rose 10.4% yoy against a
revenue increase of 5.3% yoy.
Expect tough road ahead
Although sales volume improved qoq,
this could be due to the government’s
initial effort to clamp down the illicit
market between Mar and May 2014.
With the weakening consumer
spending and the impending GST
implementation, which may raise
cigarettes prices, we think sales
volume has more downside risks than
upside potential. While selling price
increase could bump up profits in the
near term, it is not a long term
solution as any price increase will
cause the illicit cigarettes to spike up.
Furthermore, we believe that as JTI
has been taken private, will be more
aggressive in fighting for market share,
putting more pressure on BAT.

benson911

639 posts

Posted by benson911 > 2014-07-22 22:10 | Report Abuse

As our people become more and more health conscious, this stock will be in bleak future...........

GTTO

5 posts

Posted by GTTO > 2014-07-26 21:37 | Report Abuse

smokers dont really care "weaker consumer spending and high illicit trade. "... once addicted , sure will buy.

ryan7642

1,998 posts

Posted by ryan7642 > 2014-07-31 23:02 | Report Abuse

First time trying the most exp share in Msia.just bought some at 69 n sold at 70 hehehe not bad small profit within an hr +^^

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