Period 4Q12 /
FY12
Actual vs. Expectations The FY12 net profit (“NP”) of RM797.7m was
in-line with expectations, making up 98.1% and 101.4% of the street’s and our
expectations of RM813m and RM787m, respectively.
Dividends A
fourth interim NDPS of 77 sen was declared, which totalled up to 272 sen, which
is in-line with our estimates.
Key Results Highlights QoQ, the NP improved 5.9% in 4Q12 despite a
5.7% decline in revenue. This was mainly due to lower tax bracket of 20.1% as
compared to 25.7% in 3Q12. The decline in revenue was primarily due to the
lower domestic and contract manufacturing (“CM”) volume. The poorer domestic
sales caused mainly by the aftereffect of budget speculation and the price increase
of 20sen/pack in Oct,
YoY, the NP improved 8.9% on the back of a
better sales growth of 10.8% and sales volume growth of 2.9%. This was mainly
driven by the strong performance of Dunhill, which saw its market share improved
by 1.6ppt to 47.8% compared to 4Q11.
YTD, FY12 reported a set of pretty good
results. BAT registered YoY volume growth of 0.2% for the first time since 2003
while the revenue improved marginally YoY by 5.8% buoyed by a 17% and 66%
growth in CM and semi-finished goods. NP also increased 10.9% YoY, mainly
attributable to a lower operating cost. Nonetheless, after adjustment of
exceptional items, NP should have grown 13.9% YoY.
Outlook The
legal industry volume was largely stable in FY12 on the back of a YoY decline
in illicit trade from 36.1% to 34.5%. Sub-VFM volume also tumbled YoY by 39.1%.
As a result of this, we foresee the legal volume to continue growing,
benefiting the three main players. As the share market increase in premium has
resulting decline in both VFM and sub-VFM, we expect the trend to continue and
BAT will likely be the main beneficiary given the strong market share of
DUNHILL. Besides, we are also positive on the stock due to its growing CM to diversify
the domestic exposure.
Change to Forecasts We have
fine-tuned our FY13 by 4.4% to RM816.4m after adjustment of better margins
coming from CM.
Rating MARKET PERFORM for now while we see better upside.
This is because, we may see a shift from defensive stocks to high-beta stock
after uncertainties are cleared.
Valuation We have
raised our TP from RM66.30 to RM68.40, which is based on a 24x PER over the
FY13 EPS of 285 sen, in-line with higher earnings estimates.
Risks The
Government may potentially increase excise duty after the general elections,
which may have a negative impact to BAT or the legal tobacco industry.
Source: Kenanga
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