KUALA LUMPUR (May 27): British American Tobacco (Malaysia) Bhd's (BAT Malaysia) net profit for the first quarter ended March 31, 2022 (1QFY22) fell 17% to RM52.29 million from RM63.11 million in the previous year's corresponding quarter, no thanks to the onset of the Omicron variant and prevalence of the tobacco black market.
Its revenue for the quarter declined 8% to RM521.56 million from RM566.55 million, which it blamed on the Omicron variant having affected purchasing habits, persistently high illicit cigarette incidence and other seasonal factors.
However, the group managed to reduce its operating expenses by 14% or RM8 million year-on-year (y-o-y), following its cost rationalisation efforts, which mitigated the impact of lower sales volume to its profit from operations, which was marginally lower at RM82 million compared with RM87 million a year ago.
During the quarter, Dunhill's share of the premium segment grew by 0.7 percentage point (ppt) y-o-y to 61.9%, while its value-for-money brands Rothmans and KYO grew 1ppt y-o-y to 35% share of the segment.
Growth in these strategic segments cushioned the impact of the 1.3ppts y-o-y reduction in share of market for its aspirational premium brands, following the transition of Pall Mall to Peter Stuyvesant as part of the company's portfolio optimisation strategy.
Overall, the company's total market share stood at 51.9%, down 0.5ppt y-o-y.
"BAT Malaysia is maintaining the growth trajectory of its strategic brands within its premium and value-for-money segments. This is in tandem with the company's aim to deliver combustible value growth," said BAT Malaysia managing director Nedal Salem in a statement.
"Concurrently, BAT Malaysia is also poised to benefit further from its future-fit route-to-market hybrid sales model and digital transformation initiatives, all of which will play a role in creating a simpler and faster organisation," he added.
Nedal said the tobacco black market continues to weigh down on the performance and operations of the legal industry and cause the government to lose about RM5 billion annually in uncollected tax revenue.
The prevalence of the black market may continue to increase, he said, as a result of the reopening of borders and the resumption of cross-border trade and travel, which could potentially reverse the downtrend achieved in 2021 following measures put in place by the government to curtail the problem.
"It is extremely critical that the government now focuses its attention and resources to increase enforcement and reinforce border security. Policy stability is also important to ensure that tobacco black market syndicates are not inadvertently incentivised, further triggering an uptick in prevalence.
"Instead, the government should seize the opportunity to explore measures to close the price gap between legal and black market tobacco products," Nedal added.
Meanwhile, the group is encouraged by the government's move towards regulating the vape industry, adding that regulations must be premised on scientific evidence and data to allow Malaysian smokers access to alternatives with potentially lower risk and ensure products used are compliant with quality and safety standards.
BAT Malaysia shares closed 12 sen or 0.95% higher at RM12.78, giving a market capitalisation of RM3.65 billion.