JTI’s FY12 core earnings of RM113.5m (-7.6% y-o-y) missed expectations as continued weakness in its flagship VFM brand Winston dragged sales volumes down. The company has also closed down its leaf and stemmery operations, citing a challenging operating environment, and booked a RM12.2m restructuring charge as a result. We keep our forecasts under review pending further information at its analyst briefing today. Maintain NEUTRAL.
Below estimates. JTI posted 4QFY12 revenue of RM290.0m (+9.2% y-o-y, -9.1% q-o-q) and headline earnings of just RM3.0m (-83.4% y-o-y, -90.4% q-o-q) following a RM12.2m restructuring charge as the company ceased its leaf and stemmery operations. Stripping off the restructuring charge, 4Q profit would come in at RM15.2m (-15.9% y-o-y, -51.2% q-o-q), still weaker amid poor Value-for-Money (VFM) cigarette sales. The sequential earnings contraction can be partially explained by the seasonality. Cigarettes typically experience strong volumes in 3Q in anticipation of potential tobacco excise hikes in the annual Budget. Weak sales volume subsequently follows in 4Q as retailers gradually deplete their high stockpiles. Full year revenue and core earnings came in at RM1,234.3m (+3.0% y-o-y) and RM113.5m (-7.6% y-o-y), accounting for 91.6% and 89.9% of our and consensus forecasts.
Shutting down its leaf and stemmery operations. The shutdown came following a review of JTI’s business and operating environment over the past couple of years. The challenges it had faced over the past year, including declining volumes and market share for its key brand Winston, led to the decision. The company also ceased purchases of tobacco leaves from local farmers as a result of the shutdown. The RM12.2m restructuring charges seen this quarter thus include a RM3.3m impairment on PPE, a RM4.2m sum for employee separation payments and a RM3.1m goodwill payment to local tobacco farmers.
Eagle continues to struggle. Winston, JTI’s flagship VFM brand, saw market share shrink further to 9.8% in FY12 from 10.0% a year ago as price sensitivity among its target consumers saw some of them opting for illicit cigarettes or cigarettes sold below the government-mandated minimum price of RM7.20 per pack. Mild Seven, the sole bright spot for JTI over the past year, nonetheless continued to outperform, growing its market share by 0.3ppt to 4.4%.
Maintain NEUTRAL. We are putting our forecasts under review pending further details on the company’s future prospects and endeavours at its analyst briefing today.
Below estimates. JTI posted 4QFY12 revenue of RM290.0m (+9.2% y-o-y, -9.1% q-o-q) and headline earnings of just RM3.0m (-83.4% y-o-y, -90.4% q-o-q) following a RM12.2m restructuring charge as the company ceased its leaf and stemmery operations. Stripping off the restructuring charge, 4Q profit would come in at RM15.2m (-15.9% y-o-y, -51.2% q-o-q), still weaker amid poor Value-for-Money (VFM) cigarette sales. The sequential earnings contraction can be partially explained by the seasonality. Cigarettes typically experience strong volumes in 3Q in anticipation of potential tobacco excise hikes in the annual Budget. Weak sales volume subsequently follows in 4Q as retailers gradually deplete their high stockpiles. Full year revenue and core earnings came in at RM1,234.3m (+3.0% y-o-y) and RM113.5m (-7.6% y-o-y), accounting for 91.6% and 89.9% of our and consensus forecasts.
Shutting down its leaf and stemmery operations. The shutdown came following a review of JTI’s business and operating environment over the past couple of years. The challenges it had faced over the past year, including declining volumes and market share for its key brand Winston, led to the decision. The company also ceased purchases of tobacco leaves from local farmers as a result of the shutdown. The RM12.2m restructuring charges seen this quarter thus include a RM3.3m impairment on PPE, a RM4.2m sum for employee separation payments and a RM3.1m goodwill payment to local tobacco farmers.
Eagle continues to struggle. Winston, JTI’s flagship VFM brand, saw market share shrink further to 9.8% in FY12 from 10.0% a year ago as price sensitivity among its target consumers saw some of them opting for illicit cigarettes or cigarettes sold below the government-mandated minimum price of RM7.20 per pack. Mild Seven, the sole bright spot for JTI over the past year, nonetheless continued to outperform, growing its market share by 0.3ppt to 4.4%.
Maintain NEUTRAL. We are putting our forecasts under review pending further details on the company’s future prospects and endeavours at its analyst briefing today.
Source: OSK
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