This article first appeared in The Edge Financial Daily, on October 28, 2015.

KUALA LUMPUR: British American Tobacco (M) Bhd’s (BAT) net profit rose 6.55% to RM256.89 million for the third quarter ended Sept 30, 2015 (3QFY15), from RM241.10 million a year ago, largely on lower operating expenses, lower finance costs, and lower cost of sales.

In a filing with Bursa Malaysia yesterday, the group said its revenue for 3QFY15 fell 3.99% to RM1.16 billion, from RM1.21 billion in the previous year.

Nevertheless, it declared a third interim dividend of 78 sen per share, amounting to RM222.71 million for the financial year ending Dec 31, 2015, payable on Nov 26.

For the nine-month period (9MFY15), net profit rose 0.13% to RM715.53 million, from RM714.59 million last year. However, revenue slipped 1.86% to RM3.52 billion from RM3.59 billion.

“Revenue declined, coupled with lower cost of sales driven by productivity savings and lower volume base, translated into a growth of gross profit of 2.8% (RM35 million) in the first nine months of 2015 versus the same period of last year,” BAT said.

As of September 2015, total domestic industry volume declined 10.9% versus the same period last year. This is largely driven by the softer demand among consumers due to weaker market sentiments after the implementation of the goods and services tax.

“During this period, driven by strong market share performance, the group performed slightly better than the industry registering a volume decline of 10% compared to last year,” it said.

Contract manufacturing volumes year to date (YTD) continued to be weak largely due to the reduction in volumes sold to Australia and South Korea, showing a decline of 22.8% compared to 2014.

As of August 2015 YTD, the group registered a market share of 62%, with Dunhill maintaining its leadership with a market share of 46.9%.

BAT said it expects legal cigarettes’ volumes to suffer after the steep increases in excise duty in the last two years and the pressure on consumers’ disposable income in the last two quarters, adding that the illegal cigarette trade in Malaysia remains a key challenge in 2015 for the legal tobacco industry.

“As a result, the outlook for the rest of the year will depend on the recovery of the legal market,” it said.

BAT’s (fundamental: 1.35; valuation: 1.5) counter was the top gainer yesterday, closing RM1.10 or 1.74% higher at RM64.20, after rising as much as RM1.40 to an intraday high of RM64.50.

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