BATM registered 1HFY12 earnings of RM415.4m (+14.5% y-o-y), above both our and consensus forecasts. However, its revenue drivers remained lackluster, with distribution model changes and lower provisions for staff incentives mostly boosting earnings. Volumes increased slightly, with Dunhill again being the key driver, while the illicit cigarettes market share dropping to 34.7% of total cigarettes consumed. We raise our FY12 and FY13 earnings forecasts by 4.8% and 1.8% respectively, which accordingly raise our FV to RM54.22. Maintain NEUTRAL.
Above expectations. BATM posted 2QFY12 revenue of RM1,068.0m (+2.4% both y-o-y and q-o-q) and earnings of RM220.8m (+19.9% y-o-y, +13.5% q-o-q). the company eked out marginal revenue gains despite stagnant shipment volume as it sold more Premium segment cigarettes. Net margins, meanwhile, widened by 3.0 ppt y-o-y to 20.7%, largely due to a 39.8% drop in operating expenses. 1HFY12 earnings totaled RM415.4m (+14.5% y-o-y) on the back of slightly stronger sales volume and substantially lower operating expenses. The first six months’ profits represented 56.5% and 55.6% of our and consensus estimates respectively.
Lower operating expenses lift earnings. The vast improvement in 1HFY12 earnings came from a RM58.5m reduction in operating expenses, of which RM13.0m arose from cost recognition timing differences while the bulk of the remaining RM45.5m reduction was attributed to lower provisions for staff incentives (e.g. bonuses) and savings arising from BATM’s move to outsource its distribution network in 4QFY11. Cost savings from a change in the company’s distribution model is likely to have led to a RM15m-RM16m cost reduction, indicating that RM20m-RM30m of the remaining cost reduction probably came from lower allocation for staff compensation. BATM will launch its 1SAP system in September and will be first among the companies within the BAT group to do so. The BAT group’s 1SAP system is the single largest global SAP system being implemented and is targeted to enhance standardisation and transparency within the BAT group to further squeeze out potential cost savings.
Shipments weaker. The revenue drivers were, and remained unexciting. BATM sold 2.17bn sticks during 2QFY12 (-1.2% y-o-y), boosting the 1HFY12 shipments to 4.34bn sticks (+1.6% y-o-y). The company’s 1QFY12 volume picked up 4.5% y-o-y after a weak 1QFY11, during which sub value-for-money (VFM) brands were sold below the minimum retail price (MRP) of RM7 per 20-stick pack. Hence, 1QFY12’s volumes were still some 3.6% off the more normalized 1QFY10. In 2QFY12, total industry volume (cigarettes from BATM, JTI and PMI) rose by a much tamer 0.4% y-o-y following a 7.7% y-o-y jump in 1QFY12.
Illicits down amid Government goodies handout. The first batch of data on illicit cigarette for Mar-May show that 34.7% of the cigarettes consumed in the country were smuggled, down slightly by 0.1 ppt from that for Oct-Dec 2011, and a 2.6 ppt drop y-o-y. The Government’s decision not to increase excise duties in the previous Budget but to step up enforcement efforts and distribute cash payouts as part of its election campaign seemed to have helped curb the sale of illicit cigarettes. The volume of cigarettes consumed (legal and illegal combined) was pretty much flat YTD. As expected, the Premium segment’s market share rose 3.9 ppt, perhaps suggesting that consumers uptraded after receiving the Government’s payouts.
Dunhill going strong. Dunhill, the firm’s flagship premium brand, saw market share grow by 3.1ppt compared to 1HFY11. Much of the market share growth was contributed by the traditional full-flavour Dunhill brand (a favourite among rural and elderly folks) rather than Dunhill Light or Dunhill Menthol. This further indicated that the Government payouts are encouraging aid recipients (mainly rural folk and senior citizens) to switch from illicits to legal Premium sticks. BATM’s share of the Premium segment remained at 72.0% but saw its VFM market share ease by 1.3 ppt to 41.3%.
Maintain NEUTRAL. We revise upward our FY12 and FY13 earnings forecasts by 4.8% and 1.8% respectively after trimming our operating expenses estimates. Our FV is accordingly raised to RM54.22, based on our FCFF model (WACC: 5.5%, terminal growth: 1.0%). BATM is paying out another RM0.65 per share of dividends this quarter, bringing its YTD dividend yield to 2.3%.
Source: OSK
No comments:
Post a Comment