CGS-CIMB upgrades BAT to 'Hold', TP unchanged at RM15.45

CGS-CIMB upgrades BAT to 'Hold', TP unchanged at RM15.45
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KUALA LUMPUR (Jan 3): CGS-CIMB Securities Sdn Bhd has upgraded British American Tobacco (M) Bhd (BAT) shares to "hold" from "reduce", with an unchanged target price (TP) of RM15.45, as the stock is seen supported by a forecasted 7.4% dividend yield for financial year ending Dec 31, 2020 (FY20).

In a note today, CGS-CIMB analyst Kamarul Anwar said the recent pullback in BAT's share price elevated FY20-21 dividend yields to above 7%, which CGS-CIMB deems attractive.

At Bursa Malaysia's midday break today, BAT's share price settled two sen or 0.13% lower at RM15.18, valuing the company at RM4.33 billion.

Kamarul said: "A sharp (share price) retracement warrants an upgrade. BAT's share price has plunged by 19.2% since it announced its 3QFY19 earnings on Oct 31, 2019. At the current level, the stock is technically a Hold; it provides a 1.6% theoretical upside, and it is supported by a 7.4% FY20F dividend yield."

"However, we caution that its earnings decline may not abate anytime soon. This, in turn, could pose a risk of its yield shrinking over the years. The smoking ban at eating premises effective Jan 1 may also affect smoking frequency among Malaysians.

"Outlook remains challenging. The company still faces potential challenges, such as: i) the one-off redundancy costs for c.100 (or 20%) of its employees, which would affect its FY19F DPS (dividend per share); ii) higher near-to-mid-term distribution and marketing costs from the potential legalisation of electronic cigarettes and vapouriser products; and iii) more existing legal smokers switching to vapes," he said.