Friday 21 Jun 2024
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KUALA LUMPUR (May 24): Shares in British American Tobacco (Malaysia) Bhd (KL:BAT) fell on Friday and were on course for their worst day in four years, after the cigarette company reported two-decade low quarterly profits.

BAT Malaysia fell as much as 7.2% or 65 sen to RM8.39. At 9.45am, the stock was trading at RM8.40, still down 7% and set for its biggest decline in a single day since May 22, 2020. The stock was also more active than usual, with trading volume at more than double its 200-day moving average.

At least two research houses tracking BAT Malaysia have downgraded their ratings following results of the company’s first quarter ended March 31, 2024 (1QFY2024), which largely missed market expectation — core profit after tax of RM32.3 million came in at about 15% of full-year forecast. 

Hong Leong Investment Bank (HLIB), which downgraded BAT Malaysia to “sell”, said sales may be dragged down by the shrinking combustible tobacco market in Malaysia amid competition from electronic cigarettes.

“Although the group introduced its Vuse brand in FY2023, and the brand has achieved strong sales milestone, we believe it will be a Herculean task for BAT Malaysia’s e-cigarette products to fully offset the sales decline from lower combustible cigarette sales,” HLIB said.

Shares of BAT Malaysia, the country’s sole listed cigarette company, have slipped more than 9% so far this year amid the company’s efforts to diversify through the introduction of e-cigarette products at a time when overall smoking rates are on the decline.

BAT Malaysia now only has two “buy” calls out of eight analysts tracking the stock while four including HLIB have “sell” ratings. The remaining two are on “hold” recommendations. The consensus’ 12-month target price stood at RM8.74, according to Bloomberg.

Outlook for earnings “remains challenging given the lack of robust earnings streams,” HLIB said. The increasing prevalence of vaping will persistently erode the combustible cigarette segment that anchors BAT Malaysia’s sales, the house cautioned.

“Unlike the traditional combustible cigarette market, which has only three players in Malaysia, the vape market is highly fragmented,” said HLIB.

Further, its decision to expand in the vape market at the expense of traditional cigarette market share has led to the dispersion of sales among multiple brand owners, putting pressure on BAT Malaysia’s sales, HLIB flagged.

On Thursday, BAT Malaysia reported net profit for 1QFY2024 came in 34.46% lower year-on-year (y-o-y) at RM29.99 million — the lowest level seen in over two decades since 4QFY2000 — against RM40.32 million a year earlier.

Quarterly revenue, however, grew 5.57% to RM411.97 million from RM390.23 million in 1QFY2023, thanks to Vuse, which was introduced to the market in the second half of last year.

The company has declared a first interim dividend of 10 sen per share — the lowest ever declared — amounting to RM28.55 million for FY2024, payable on June 20.

Edited ByJason Ng
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