KUALA LUMPUR (July 24): Shares in British American Tobacco (Malaysia) Bhd (BAT) rose 3.08% in the mid-morning today despite a 28.39% fall in net profit of the company to RM54.61 million for the second quarter ended June 30, 2020 (2QFY20), from RM76.27 million a year earlier, due to lower sales.

At 10.30am, BAT was 32 sen higher at RM10.70, valuing it at RM3.05 billion.

Revenue for the quarter stood at RM546.59 million, down 14.7% from RM640.81 million previously.

BAT said the decline in profit was mainly due to legal market contraction as a result of illegal cigarette volume and illegal nicotine vaping growth, market downtrading and lower duty-free sales as a result of Covid-19 travel restrictions.

In a note yesterday, CGS-CIMB Research said BAT’s core net profit for the first half ended June 30, 2020 (1HFY20) was largely in line at 38% of its FY20 forecast as the research house had expected sales to fall during the lockdown period.

However, its analyst Ahmad Kamarul Anwar Kamaruddin said he believes the quarter-on-quarter (q-o-q) revenue rebound in 2QFY20 was proof that 1QFY20 was not indicative of how BAT would perform for the rest of FY20.

“Its revenue rose 13.6% q-o-q for 2QFY20, lifting core net profit by 12% q-o-q.

“Note that the q-o-q sales growth came in spite of: i) the majority of the movement control order (MCO) falling in 2QFY20 (April 1 to May 3); and ii) the Ramadan fasting month that started on April 24 which may have reduced Muslim smokers’ cigarette consumption,” he said.

Ahmad Kamarul maintained his “add” rating for BAT with a lower target price (TP) of RM14.45, from RM14.81, and said BAT’s share price had retraced by 22% since its 1QFY20 earnings announcement on May 21, trading near its all-time low.

“At this level, even the annualised 1HFY20 DPS (dividend per share) would bring a yield of 6.7%, which remains appealing amid the current market volatility.

“We see more q-o-q improvements in earnings to catalyse interest in the stock,” he said.