BAT prospects dependent on MoH’s move on smoking


BRITISH American Tobacco Bhd’s (BAT) revenue for the fourth quarter ended Dec 31, 2021 (4Q21) grew slightly driven by a recovery in the legal tobacco market, as well as the further easing of movement restrictions.

Hong Leong Investment Bank Bhd (HLIB) analyst Sophie Chua Siu Li wrote the tobacco company’s core PATAMI for the 4Q21 at RM78.6 million was within expectations and takes BAT’s financial year 2021 (FY21) core net profit (CNP) to RM294.1 million, an increase of 12.8% YoY.

“The performance was in line with both our and consensus estimates at 104% and 103%, respectively,” she wrote in a research report on BAT yesterday.

On a year-on-year (YoY) basis, BAT’s 4Q revenue grew by 30.5% partially due to a continued recovery in the legal tobacco market.

However, a sharp increase in operating expenses (+58% YoY) resulted in its CNP growing by a mere 1.3% in the period.

With regard to potential smoking ban implementation from the Ministry of Health (MoH), HLIB believes it is not expected to take effect immediately but the gradual shrinking of the customer base as a result would be detrimental to BAT in the longer term.

MoH is planning to impose a ban on the sale of smoking products to individuals born after 2005, in a bid to ban smoking permanently for the younger generation, the investment bank noted.

Health Minister Khairy Jamaluddin Abu Bakar revealed that the Tobacco and Smoking Control Act will be tabled to the parliament for this purpose and to regulate the consumption of vape and e-cigarettes.

“As such, we lower our long-term growth rate on BAT from 2.5% to 1%.” Chua noted.

The potential smoking ban might not have any significant impact on HLIB’s FY22-FY23 forecast for BAT, and therefore, it kept its earnings forecasts for BAT unchanged but lowered its target price to RM12.14 from RM14.16 previously.

HLIB maintained a “Hold” recommendation for BAT despite revising its long-term growth rate downwards.

BAT declared an interim dividend of 27 sen, payable on Feb 22. BAT shares rose 38 sen or 3% to RM12.78 yesterday, valuing the company at RM3.65 billion.