KUALA LUMPUR (Dec 22): British American Tobacco (Malaysia) Bhd (BAT) has been moved into the FTSE Bursa Malaysia (FBM) Mid 70 Index effective Dec 18, 2017.
In a statement today, BAT explained that being moved into the FBM Mid 70 index from the FBM KLCI is a reflection of BAT's share price performance since the steep excise duty increase in November 2015 and more importantly the shareholders' evaluation on future earning potential when investing in BAT.
"Whilst we were very proud to be part of the FBM KLCI, indicating the strong consistent performance over many years, we are less disappointed that we have been moved to the FBM Mid 70 Index as ultimately we understand that this was an outcome of relative performance in comparison with other listed companies on the Bursa," its managing director Erik Stoel told theedgemarkets.com.
"What is however very upsetting is the real underlying reason that dictates our financial performance and therefore investors' current evaluation of earnings opportunities," he added.
"To be very clear, a significant transformation has taken place in BAT Malaysia since the November 2015 excise increase, which has ensured that by now we are a much stronger company than before, through a leaner and more efficient operating model, a future proof brand portfolio to extend our market leadership and also with significantly improved capabilities. Under normal circumstances, I would say that it is a much more sustainable model to maximise shareholder returns," said Stoel.
He highlighted that the real reason for the pressure on BAT's share price is the concerning state of the Malaysian tobacco market, which is a reflection of affordability problems that tobacco consumers are currently facing when buying legal cigarettes, and as a consequence the rise of unacceptable high levels of illegal cigarettes in Malaysia.
"Shareholders like to see an outlook of sustainable profit growth to invest. The fact is, we really need the illegal tobacco market to come down to provide that outlook, because at current levels it simply undermines the profitability of the legal market," said Stoel, adding that BAT will work to improve its results on the back of its stronger operating model, but to expect profit levels of the past will require big interventions to reducing the illegal market.
"This underlines the issue of condoning a 60% illegal market. It is simply a huge societal problem — it undermines legal companies, it undermines significant shareholder returns, it has reduced a significant amount of jobs in all legal tobacco companies, it undermines tax revenues that could be invested in the development of the country and it even undermines the health agenda of the country with respect to smoking," he said.
"Solving the illegal cigarette problem in Malaysia would literally do everybody a favour. The question is who and when will it be tackled. Until then I will need to be happy to be in the FBM Mid 70 index, with a clear ambition to go back to the KLCI," added Stoel.
Shares in BAT closed RM1.18 or 3.35% higher to RM36.44 today for a market capitalisation of RM10.4 billion.