JTI’s 1HFY12 profits of RM67.2m (+3.3% y-o-y) were within expectations as stronger volumes and an increasing presence in the premium segment aided earnings. 2QFY12 earnings were however lower, as weaker sales volume from its Winston brand and higher marketing costs capped profitability. JTI’s flagship premium brand Mild Seven continues to outperform while VFM brand Winston continues to see its popularity erode. We trimmed our FY12 and FY13 earnings by 4.0% and 4.9% respectively on higher marketing expenditures. Maintain BUY with lowered FV of RM7.54. YTD dividend yield stands at 9.7%
Within estimates. JTI posted 2QFY12 revenue of RM303.8m (-0.9% y-o-y, -5.5% q-o-q) and earnings of RM29.4m (-3.5% y-o-y, -22.1% q-o-q). A marginal 0.8% decline in sales volume, coupled with increased marketing and operating expenditures following the introduction of a new range of Winston cigarettes, were the culprits in dragging its 2Q earnings. 1HFY12 revenue and profits clocked in at RM625.2m (+4.7% y-o-y) and RM67.2m (+3.3% y-o-y) respectively, aided by stronger volumes and an increasing presence in the premium segment but partly suppressed by higher marketing expenses. The 1HFY12 earnings represent 49.5% and 52.1% of our and consensus estimates.
Seafarers sail, but the Eagle falls. JTI’s flagship premium brand Mild Seven (the name of which will be changed to Mevius beginning Feb 2013) saw a market share gain of 0.4ppt to 4.3% during the first half of the year. Winston, the industry’s leading Value-for-Money (VFM) brand and the company’s largest volume contributor, however, saw market share shrink by 0.6ppt to 9.7%. Winston’s decline led JTI’s total market share to erode to 19.7% from 20.0% previously. Likewise, the country’s largest cigarette manufacturer, BAT, is seeing volumes decline by 1.2% y-o-y. With the industry’s 2QFY12 volume rising by a tame 0.4% y-o-y, industry data suggests that the only growing major cigarette producer within Malaysia is PMI, the manufacturer of Marlboro cigarettes.
Maintain BUY. We trim our FY12 and FY13 earnings forecasts by 4.0% and 4.9% respectively as we raise our marketing and operating expenditures estimates. Our FV is accordingly lowered to RM7.54, based on our FCFF model (cost of equity: 7.5%,
terminal growth: 1.0%). JTI declared another interim dividend of 11 sen per share, which translates into a YTD dividend yield of 9.7%. The near term catalyst remains the increasing likelihood of a second consecutive year of unchanged tobacco excise duties when the 2013 Budget is announced. Long term industry prospects remain bleak, however, with a resumption of duty hikes post-general election likely to send industry volume growth back to negative territory.
Seafarers sail, but the Eagle falls. JTI’s flagship premium brand Mild Seven (the name of which will be changed to Mevius beginning Feb 2013) saw a market share gain of 0.4ppt to 4.3% during the first half of the year. Winston, the industry’s leading Value-for-Money (VFM) brand and the company’s largest volume contributor, however, saw market share shrink by 0.6ppt to 9.7%. Winston’s decline led JTI’s total market share to erode to 19.7% from 20.0% previously. Likewise, the country’s largest cigarette manufacturer, BAT, is seeing volumes decline by 1.2% y-o-y. With the industry’s 2QFY12 volume rising by a tame 0.4% y-o-y, industry data suggests that the only growing major cigarette producer within Malaysia is PMI, the manufacturer of Marlboro cigarettes.
Maintain BUY. We trim our FY12 and FY13 earnings forecasts by 4.0% and 4.9% respectively as we raise our marketing and operating expenditures estimates. Our FV is accordingly lowered to RM7.54, based on our FCFF model (cost of equity: 7.5%,
terminal growth: 1.0%). JTI declared another interim dividend of 11 sen per share, which translates into a YTD dividend yield of 9.7%. The near term catalyst remains the increasing likelihood of a second consecutive year of unchanged tobacco excise duties when the 2013 Budget is announced. Long term industry prospects remain bleak, however, with a resumption of duty hikes post-general election likely to send industry volume growth back to negative territory.
Source: OSK
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