KUALA LUMPUR (Feb 13): British American Tobacco (Malaysia) Bhd (BAT) announced today a 74% year-on-year drop in its fourth quarter net profit to RM78.20 million from RM299.12 million, on the absence of land sale related income, and as operating expenses ballooned due to the provision of impairment for prepaid excise duties.

The year-ago quarter had booked a land sale related income of RM159.46 million, its bourse filing for the fourth quarter results ended Dec 31, 2017 (4QFY17) showed. Quarterly revenue, meanwhile, fell 17% y-o-y to RM700.16 million — its lowest in at least 40 quarters — from RM840.61 million.

Its 4QFY17 earnings per share declined to 28.40 sen from RM1.013 previously. Its board declared a fourth interim dividend of 43 sen per share, payable on March 22. This brings its FY17 dividend tally to RM1.69, from RM2.78 in FY16.

BAT said it made the provision for impairment of prepaid excise duties of RM21 million during the quarter, which pushed its operating expenses to RM118.2 million from RM83.33 million a year ago. It said the sum is pending refund from the Royal Malaysian Customs, but it decided to be prudent by recording the provision as Customs has yet to decide on the refund.

"Currently, the group is actively engaging RMC to obtain the refund," it said. The pending excise duties refund were related to unused tax stamps and tax stamps wastages encountered during the manufacturing process.

The 4QFY17 results dragged its full year net profit down 34% y-o-y to RM479.69 million — its lowest since 2000 — from RM732.07 million, as revenue declined 20% to RM3 billion from RM3.76 billion.

The revenue decline was driven by lower domestic volume, cessation of contract manufacturing for exports, and growth of the lower price segment.

In FY17, BAT Malaysia's domestic and duty free volumes for the year declined 14.2%, while illegal cigarettes incidence increased 5.7% to 58.3% in 2017, primarily driven by the continued affordability pressure on consumers, coupled with enforcement challenges on curbing the trade of illegal cigarettes.

"The group’s volume recovery trend in the first half of 2017 stagnated in the second half of 2017, mainly due to the market dynamics within the illegal cigarettes segment and the continuous growth of lower price segment within the legal market in the fourth quarter of 2017," the filing read.

In a separate press statement, BAT said the group remains concerned that the legal domestic market continues to suffer due to escalating illegal cigarettes trade in the country in 2018.

“We believe that the Rothmans launch in the value for money segment will strengthen our portfolio for the long term. However, despite all the positive developments which we have worked hard for, we see illegal trade impacting our results,” its managing director Erik Stoel said.

The group, however, shared that its market share grew 1.4% to 54.6%, and that its flagship brand Dunhill saw stable volume in the financial year, thus reinforcing its leadership in the premium segment.

The counter closed 76 sen or 2.37% higher at RM32.88 today, for a market capitalisation of RM9.39 billion. The last time the stock was trading at this low level was around Oct 2011.