(Updated)

BAT gains after declaring 24 sen dividend as profit rises

BAT gains after declaring 24 sen dividend as profit rises
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KUALA LUMPUR (July 26): British American Tobacco (Malaysia) Bhd’s (BAT) share price settled up about 2% during Bursa Malaysia's afternoon break today after the company declared last Friday a tax-free 24 sen dividend a share as the group reported a higher second-quarter net profit of RM71.62 million from RM54.61 million a year earlier. 

At 12.30pm, the company's share price settled up 28 sen or 1.94% at RM14.70 after trading between RM14.68 and RM14.88 so far today. At RM14.70, BAT had a market value of about RM4.2 billion based on the company’s 285.53 million issued shares.

Last Friday, BAT said in filings with Bursa that the cigarette manufacturer’s revenue rose to RM595.8 million for the second quarter ended June 30, 2021 (2QFY21) from RM546.59 million a year earlier.

For the first half (1HFY21), the company said its cumulative net profit climbed to RM134.73 million from RM105.38 million a year earlier, while revenue was higher at RM1.16 billion versus RM1.03 billion.

It also announced a dividend per share of 24 sen, the ex- and payment dates of which fall on Aug 5 and Aug 20 respectively.

Today, Hong Leong Investment Bank Bhd (HLIB) analyst Gan Huan Wen said in a note BAT’s 1HFY21 core profit after tax of RM134.7 million was above the research house's estimate but in line with the consensus forecast — at 58.4% and 49.3% of HLIB's and the consensus full-year forecasts respectively.

Gan said HLIB had raised its FY21, FY22 and FY23 earnings forecasts by 11.7%, 10.5% and 8.9% respectively for BAT after taking into account the company’s higher cigarette sales volume.

"After the earnings [forecast] adjustments, our [BAT] TP (target price) rises to RM12.95 from RM11.75 previously based on an unchanged DCF (discounted cash flow) valuation methodology. [We] upgrade [our call] to 'hold' (from 'sell'),” the analyst said.

According to the analyst, while HLIB expects BAT's 3QFY21 profitability to be affected by Malaysia’s Covid-19- driven movement restriction policies, the research house is encouraged by the government’s clampdown on illicit cigarette trade.

Meanwhile, TA Securities Holdings Bhd analyst Jeff Lye Zhen Xiong wrote in a note today that TA is maintaining its earnings forecasts for BAT with an unchanged "buy" call and TP of RM15.70 for the stock.

"Note that an analyst briefing [by BAT] will take place in August,” Lye said.

He said today that in the near term, the extension of Malaysia's pandemic-driven movement restriction policies is expected to negatively affect the operations of BAT.

"Furthermore, duty-free sales will remain subdued for the rest of FY21, given that regional and international travel restrictions are still being enforced in Malaysia.

"Nevertheless, we are encouraged that there was a meaningful conversion of illicit cigarette [trade] to legal industry [trade] following the implementation of Budget 2021 measures. The level of illicit trade dropped to 58% in mid-2021 from 63% at end-2020 and legal industry volume recovered 12% y-o-y (year-on-year) We believe the business landscape of legal cigarette players will continue to improve, thus benefiting BAT, which has a dominant market share in the legal cigarette industry,” the analyst said.

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BAT Malaysia’s 2Q net profit rises 31% to RM71.62m, pays 24 sen dividend

Chong Jin Hun