KUALA LUMPUR (July 20): British American Tobacco (Malaysia) Bhd's (BAT Malaysia) second-quarter net profit tripled, largely thanks to increased domestic and duty-free volumes and a decline of illegal cigarette incidence.

Net profit for the three months ended March 31, 2017 (2QFY17) grew to RM144.08 million from RM47.72 million a year ago. Earnings per share rose to 51.6 sen from 16.8 sen.

Quarterly revenue, however, fell 19.6% to RM774.09 million from RM962.58 million in 2QFY16.

BAT Malaysia declared a second interim dividend of 43 sen per share for the financial year ending Dec 31, 2017 (FY17), payable on Aug 23.

In a statement today, BAT Malaysia managing director Erik Stoel said the group’s domestic volumes in 2QFY17 rose 6.2% year-on-year, driven by a recovery of market share, coupled with a small decline of illegal cigarette incidence from 58.9% in 1QFY17 to 57.9% as of May.

“The group registered market share growth to 54.5% in May from 53.5% in 1QFY17. Dunhill, the largest premium brand in the legal market, registered a 38.8% market share in May, up 1.4% from the previous quarter.

"The increase was mainly driven by the launch of Dunhill’s new line extension," said Stoel.

Peter Stuyvesant and Pall Mall, meanwhile, maintained their leadership within the aspirational premium segment, with a total market share of 11.8% as of May for the fourth consecutive month.

The improved second-quarter results performance helped boost its net profit for the first six months of the year (1HFY17) by 17.2% to RM258.31 million from RM220.33 million a year ago.

BAT Malaysia said operating expenses for 1HFY17 was also 26.3% lower than the year-ago period, on overhead savings from cost base transformation initiatives the group had undertaken, lower recharges from related entities, rental income from the sub-lease of the unutilised space currently tenanted by the group and timing of spends.

However, revenue fell 22.1% to RM1.54 billion in 1HFY17 from RM1.98 billion in 1HFY16, which BAT Malaysia attributed to lower domestic volumes by 16.9% year-on-year and the cessation of export volumes as planned under its business transformation.

Illegal cigarettes incidence for 1HFY16 has increased by about 16% to 57.9% of the total legal domestic market as of May from 50% a year ago.

BAT Malaysia blamed this on the wide price gap between legal and illegal cigarettes and current macroeconomic factors that are impacting consumer spending power.

Going forward, Stoel said the group remains concerned with legal volumes continuing to be impacted by the current high incidence of illegal cigarette trade.

"The outlook of the second half of 2017 will be very much dependent on the recovery of the legal market," he added.

BAT Malaysia shares closed up 28 sen or 0.64% at RM43.88 today, for a market capitalisation of RM12.52 billion.