BAT shares fall on impact from possible price hike

KUALA LUMPUR: Shares of British American Tobacco (BAT) reversed into the red early Wednesday, falling to a low of RM46.92 on concerns about the impact from a possible price hike.

At 10.33am, it was down 90 sen to RM47. There were 31,200 shares traded at prices ranging from RM46.92 and RM48.40.

The decline in its share price also weighed on the FBM KLCI. The KLCI fell 0.94of  a point or 0.05% to 1,753.48. Turnover was 1.11 billion shares valued at RM533.04mil. The broader market was firmer with 405 gainers, 265 losers and 361 counters unchanged.

CIMB Equities Research is retaining its Hold call for BAT with an unchanged dividend discount model (DDM) based target price of RM48.10.

Although declining volumes remain an underlying concern, it expects better profitability from outsourcing its production. Dividend yields are also attractive at 5.4%-5.8% for FY17-19F.

CIMB Research quoted The Star report about Deputy Health Minister Datuk Seri Dr Hilmi Yahaya’s comment that the government is considering increasing cigarette prices in the near future.

Dr Hilmi stated that cigarette prices could be raised to RM21.50 a pack from RM17 a pack currently, which is a 26.5% increase. This is among the measures under consideration to reduce the number of smokers in Malaysia.

Besides increasing cigarette prices, the government may also raise the legal age required to purchase cigarettes to 21 from 18 currently.