BAT (4162) : RHB Research maintains Sell on BAT
KUALA LUMPUR: RHB Research has maintained its Sell call on British American Tobacco (BAT) with a target price of RM59.60 following the revision to its earnings forecasts.
"With unattractive valuations relative to its earnings growth as well as unappealing dividend yield, we reiterate our Sell recommendation on the stock. The stock iscurrently trading at 20 times FY15 price per earnings," it said on Thursday.
BAT announced that prices of all its cigarette brands be raised by RM1.50 per pack effective Wednesday, citing the increase of three sen perstick in excise duty as the reason.
"We expect a significant drop in sales volume following the price hike, but we believe the higher average selling price (ASP) will more than offset the decline," it said.
It added that it believed BAT’s competitors, Philip Morris and Japan Tobacco International (JTI) will raise their prices as well following the hike in excise duty.
However, the quantum of the hike may not be the same as BAT, as Philip Morris did not follow suit during the price hike in Sept 8, 2014.
Given the continued decline in legal sales over the years, the price hike will accelerate the decline in the sales volume, it said.
"Although contraband cigarettes’ market share dropped 3.1ppt in the Mar-May 2014 period vs the Oct-Dec 2013 period, we note that the illicit market share is still high at 35.8%. We expect a rise in the contraband cigarette trade following the latest price hike," it noted.
RHB has lifted BAT's earnings estimates by 2.4%/10.7%/2.9% for FY14/15/16 respectively after updating its ASP, cost and volume assumptions.
http://www.thestar.com.my
KUALA LUMPUR: RHB Research has maintained its Sell call on British American Tobacco (BAT) with a target price of RM59.60 following the revision to its earnings forecasts.
"With unattractive valuations relative to its earnings growth as well as unappealing dividend yield, we reiterate our Sell recommendation on the stock. The stock iscurrently trading at 20 times FY15 price per earnings," it said on Thursday.
BAT announced that prices of all its cigarette brands be raised by RM1.50 per pack effective Wednesday, citing the increase of three sen perstick in excise duty as the reason.
"We expect a significant drop in sales volume following the price hike, but we believe the higher average selling price (ASP) will more than offset the decline," it said.
It added that it believed BAT’s competitors, Philip Morris and Japan Tobacco International (JTI) will raise their prices as well following the hike in excise duty.
However, the quantum of the hike may not be the same as BAT, as Philip Morris did not follow suit during the price hike in Sept 8, 2014.
Given the continued decline in legal sales over the years, the price hike will accelerate the decline in the sales volume, it said.
"Although contraband cigarettes’ market share dropped 3.1ppt in the Mar-May 2014 period vs the Oct-Dec 2013 period, we note that the illicit market share is still high at 35.8%. We expect a rise in the contraband cigarette trade following the latest price hike," it noted.
RHB has lifted BAT's earnings estimates by 2.4%/10.7%/2.9% for FY14/15/16 respectively after updating its ASP, cost and volume assumptions.
http://www.thestar.com.my
