BAT sales growth likely to continue in 2H

KUALA LUMPUR: British American Tobacco (Malaysia) Bhd's industry volumes are expected to grow in the second half of the year amid easing lockdown measures and as the authorities clamp down on illicit cigarette sales.

"Moving into the second half of the year, Budget 2021 looks like a positive one for BAT as industry volumes continue to gain traction on stringent measures imposed to curb rampant contraband cigarettes," said Kenanga Research.

It added that growth will be sustainable due to the introduction of less risky products to consumers, products' household name and the strengthening of its VFM products.

BAT's 1HFY21 core net profit of RM135mil came to 54% of Kenanga's full-year estimate, while its 24 sen dividend for the quarter brought year-to-date payout to 45 sen, which was in line with Kenanga's full-year expectation of 86 sen.

The research house maintained its FY21 earnings forecasts and "outperform" recommendation after raising its target price to RM15.70 from RM14.80 previously due to an increased price-earnings ratio of 17x from 16x previously, or minus-2.5 standard deviation over its three-year mean.

Meanwhile, Maybank Investment Bank Research maintained its "hold" call and target price of RM14.60 on BAT.

BAT's 1HFY21 core net profit was in line with the research house's expectation at 50% of its full-year estimate.

"Into 2H21, BAT’s volume growth is likely to continue on a gradual basis with the phased easing of lockdown measures coupled with potentially lower illicit share resulting from stricter transshipment regulations.

"Separately, no concrete details have been shared in regards to the development of the legalisation framework for nicotine-based vapour products at this juncture," said Maybank IB.
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