HLIB Research said that despite the strong showing of BAT’s vape product, Vuse, contribution from this new segment will remain negligible in the early stage.
PETALING JAYA: The earnings outlook for British American Tobacco (M) Bhd
(BAT) remains challenging over the medium term due to its lack of robust income streams from new segments amid pressure on its traditional combustible cigarette segment.
According to Hong Leong Investment Bank (HLIB) Research, despite the strong showing of BAT’s vape product, Vuse, contribution from this new segment will remain negligible in the early stage.
Following an analyst briefing by BAT on its fourth-quarter performance, HLIB Research maintained its “hold” rating on the company, with an unchanged target price of RM9.22 a share.
“Despite being a late entrant into the vape market, BAT has seen impressive performance for its Vuse brand,” it said.
It added that Vuse currently held the top position in retail outlets and the sixth position in vape stores where it is available, commanding market shares of 38% and 6%, respectively.
This achievement, the brokerage said, was especially impressive.
This is considering the highly fragmented nature of the Malaysian vape market, which had over 100 brands and more than 1,500 stock keeping units.
However, it said: “We opine the contribution from the new segment will remain insignificant in the early stage.”
BAT reported a lower net profit of RM47.36mil for the fourth quarter (4Q) ended Dec 31, 2023, as compared to RM61.73mil in the previous corresponding period.
Revenue, meanwhile, dipped to RM635.86mil from RM770.66mil.
For the financial year ended Dec 31, 2023 (FY23), its net profit fell to RM194.75mil from RM262.52mil in FY22, while revenue slipped to RM2.31bil from RM2.6bil.
“BAT experienced a notable decline in sales volume for FY23, with a 12.9% drop vis-a-vis the legal industry’s modest one percentage point decrease in combustible volume,” HLIB Research noted.
It said this larger decline could be attributed mainly to two factors, namely, the ongoing down-trading activities, which impacted BAT’s premium and aspirational premium sales which contributed around 70% of the group’s combustible cigarette sales; and weaker sales following a price hike in September 2023.
In particular, HLIB Research said the price increases in BAT’s Dunhill and Peter Stuyvesant brands created a price gap with competitors, thus adding pressure to the group’s 4Q cigarette sales.
Unless its competitors, JT International Bhd and Philip Morris Malaysia Sdn Bhd, also raise their prices, the trend was expected to continue affecting BAT’s sales performance, it added.
“In response to the declining trend in the combustible cigarette market, BAT has introduced a new value-for-money brand called Luckies to diversify its brand offerings and safeguard its market share,” HLIB Research said.
“Leveraging on BAT’s extensive sales network and Luckies’ competitive price point (RM12 as compared to Rothman’s RM12.40), this new brand has received positive attention since its launch.
“Consumer awareness, as measured by BAT’s surveys, has shown significant growth from 16% in the first week to 44% in the fifth week after the launch,” it added. Tracking this, Luckies’ market share rose from 0.1% in August 2023 to 1.4% in December 2023.
