JTI’s 9MFY12 earnings of RM98.3m (-6.1% y-o-y) were within expectations. The tepid trade speculation prior toBudget announcement this year led to a 8.2% drop in sales volume for the quarter, although 4Q sales should rebound y-o-y amid wholesalers and retailers’ lower stockpiles. Winston, the country’s most popular VFM brand, continues to face challenges as its price-sensitive consumers switched to illicit cigarettes. In view of the bleak outlook for the tobacco industry, we are downgrading JTI to NEUTRAL, with our FV lowered to RM7.02.
Within estimates. JTI’s 3QFY12 revenue and earnings were RM319.2m (-4.7% y-o-y, +5.1% q-o-q) and RM31.2m (-21.6% y-o-y, +5.9% q-o-q) respectively. Trade speculation eased ahead of the 2013 Budget announcement, leading to a 8.2% drop in sales volume. This dragged down profits, but the decline was partially mitigated by a better product mix (selling more Premium cigarettes). 9MFY12 turnover and profit came in at RM944.3m (+1.3% y-o-y) and RM98.3m (-6.1% y-o-y) respectively, suppressed by higher marketing expenditures for its new range of Winston cigarettes, but partly compensated by its stronger presence in the Premium segment. The 9-month earnings represent 75.5% and 77.6% of our and consensus estimates.
Inventory swells. We think the tepid trade speculation this year has caught JTI off guard. Its inventory as a result swelled by 30.6% q-o-q to RM112.1m, which will likely lead to higher storage expenses. BAT, in contrast, probably anticipated the softer volume take-up by wholesalers and retailers, hence explaining its relatively unchanged inventory value (-1.3% q-o-q).
The eagle continues to face challenges. Winston, its flagship Value-for-Money (VFM) brand, continued to see weakness as its price-sensitive consumers switched to illicit cigarettes. Its key Premium brand Mild Seven, in comparison, was the bright spot for the
company with market share growing 0.3ppt to 4.3%.
Within estimates. JTI’s 3QFY12 revenue and earnings were RM319.2m (-4.7% y-o-y, +5.1% q-o-q) and RM31.2m (-21.6% y-o-y, +5.9% q-o-q) respectively. Trade speculation eased ahead of the 2013 Budget announcement, leading to a 8.2% drop in sales volume. This dragged down profits, but the decline was partially mitigated by a better product mix (selling more Premium cigarettes). 9MFY12 turnover and profit came in at RM944.3m (+1.3% y-o-y) and RM98.3m (-6.1% y-o-y) respectively, suppressed by higher marketing expenditures for its new range of Winston cigarettes, but partly compensated by its stronger presence in the Premium segment. The 9-month earnings represent 75.5% and 77.6% of our and consensus estimates.
Inventory swells. We think the tepid trade speculation this year has caught JTI off guard. Its inventory as a result swelled by 30.6% q-o-q to RM112.1m, which will likely lead to higher storage expenses. BAT, in contrast, probably anticipated the softer volume take-up by wholesalers and retailers, hence explaining its relatively unchanged inventory value (-1.3% q-o-q).
The eagle continues to face challenges. Winston, its flagship Value-for-Money (VFM) brand, continued to see weakness as its price-sensitive consumers switched to illicit cigarettes. Its key Premium brand Mild Seven, in comparison, was the bright spot for the
company with market share growing 0.3ppt to 4.3%.
Increasing prices. JTI has increased its selling prices by RM0.20 per pack on 25 Oct following the Government’s mandatory ex-factory price rise, leading to higher ad-valorem and sales taxes. This follows BAT’s price hike for the same reasons on 22 Oct.
Downgrade to NEUTRAL. We are trimming our FY12 and FY13 forecasts by 4.0% and 3.9% respectively on lower VFM volume expectations. 4QFY12 is likely to record stronger y-o-y earnings as the lower trade speculation in 3Q this year should translate into greater take-up in 4Q. Industry prospects for the tobacco industry, nonetheless, remain bleak as regulatory risks intensify. With our FV cut to RM7.02, we are downgrading JTI to NEUTRAL. An interim dividend of RM0.11 was announced.
Source: OSK
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