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Possible Cigarette Price Hike Drives Down BAT Shares
March 30th, 2017 | 09:15 AM | 1948 views
PETALING JAYA
British American Tobacco (M) Bhd’s (BAT) share price fell 5.1% to RM45.44 on the back of a possible cigarette price hike.
CIMB Research in a report said that a 5% decline in BAT’s sales volume is estimated to negatively affect the financial year 2017 to 2019 forecast (FY17-FY19F) estimates by 5.2%.
“Pending an official announcement on this matter, we are holding off from making changes to our earnings estimates.
“This is assuming that the net increase in average selling prices is equivalent to the quantum of the excise duty hike.
“The excise duty hike, if it materialises, could also lead to a spike in illicit trade volumes, which stood at 51.2% as of the fourth quarter of 2016,” it said.
As stated in BAT’s 2016 annual report, the group remains concerned about the escalating illegal cigarette trade in the country, as the high level of illegal cigarette trade forms the main challenge for the legal tobacco industry.
BAT said that the outlook for the legal market this year would depend on how effective the illegal cigarette trade is addressed by the government through its enforcement efforts.
The government has raised cigarette prices in the form of higher excise duties, and this move has resulted in the lower sales volume of legal cigarettes in the industry.
Recall that the Government last revised excise duties by 40% in November 2015.
Following that, BAT’s sales volume in 2016 declined by 27.8% year-on-year.
The decline in sales volume came in line with BAT raising its selling prices for premium brands and value-for-money segments by 23.5% and 26%, respectively.
For FY16 ended Dec 31, BAT registered a revenue and net profit of RM3.76bil and RM721mil, respectively.
“Although declining volumes remain an underlying concern, we expect better profitability from outsourcing its production.
“Dividend yields are also attractive at 5.4% to 5.8% for FY17-FY19F.
“Downside risks to our view include a weaker-than-expected sales volume and an increase in illicit trade volumes,” said CIMB Research.
It was earlier reported that the Government is considering increasing cigarette prices in the near future.
Deputy Health Minister Datuk Seri Hilmi Yahaya stated that cigarette prices could be raised to RM21.50 per pack from the current RM17, which is a 26.5% increase.
The Government may also increase the legal age required to purchase cigarettes to 21 from the current 18.
These measures are under consideration to reduce the number of smokers in Malaysia.
Source:
courtesy of THE STAR
by The Star Online
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