British American Tobacco (M) Bhd
(April 3, RM68.22)
Maintain sell with a target price (TP) of RM73.15: BAT increased its cigarette selling prices by 50 sen per pack last Wednesday, for both its premium and sub-premium cigarette brands. This represents an increase of three sen per stick or between 3.6% per pack for premium and 4% for sub-premium. As a result, the new price tag for Dunhill is RM14 per pack, and Pall Mall and Peter Stuyvesant are priced at RM13.
This is the first time this year that BAT has increased the selling price of its cigarettes. However, this time the price increase of 50 sen per pack is substantially lower than the RM1.50 per pack announced in September last year.
We understand this price hike is a result of the implementation of the goods and services tax (GST). Given that we have already factored in the potential impact from GST, we make no change to our estimates. This year, we assume industry volumes to contract by some 6% year-on-year. Hence, we make no change to our earnings forecasts for BAT. Key risks to our forecast include: (i) lower-than-expected industry volume; (ii) higher-than-expected increase in excise duty hikes; and (iii) higher-than-expected increase in contraband cigarette volume.
We maintain our “sell” call and our discounted cash flow-derived TP of RM73.15. — TA Research, April 3
This article first appeared in The Edge Financial Daily, on April 6, 2015.