BAT (4162) - British American Tobacco - Thank higher selling prices
Target RM60.80 (Stock Rating: REDUCE)
BAT’s FY14 net profit was in line with our (98% of full year forecast) and consensus’ estimates (97%). The stronger results were driven by higher selling prices amid falling sales volumes and lower operating expenses. Given the in-line results, we maintain our yoy decline FY15-16 net profit forecasts. Our DCF-based target price is reduced as we roll over our valuation by a year. We also maintain our Reduce recommendation as we believe that legal cigarette volumes will continue to be under pressure, while BAT’s ability to dictate future cigarette price hikes may have eroded somewhat of late. BAT declared a final single-tier interim DPS of 78 sen, making up to a total full DPS of 309 sen, in line with our forecast. We prefer the brewers.
Stronger full-year results driven by higher selling prices
BAT’s FY14 revenue increased 6.2% yoy, while its net profit rose 9.5% yoy. Although domestic and contract manufacturing volume dropped by 3.7% and 14.8% yoy, respectively, the higher selling prices (up by RM1.50/pack in Nov 2013 and Nov 2014) were more than sufficient to counter the drop in sales volume. The weak domestic volume of BAT (-4.8% yoy based on In-Market Sales statistics) was impacted by down-trading in the market and in line with the overall reduction in legal market consumption (-4.4% yoy) which caused BAT’s market share to decline by 0.7% pts to 61.2%, while the weak contract manufacturing volume was largely due to the reallocation of production from Japan to another manufacturing facility and lower demand from the Philippines. The loss of domestic market share was also due to the price disparity between its brands and those of its competitors when it raised its prices for two weeks in September. The stronger revenue, coupled with the absence of non-recurring leaf restructuring expenses registered in 2013 and the implementation of the additional productivity savings in the production process, pushed net profit higher by 9.5% yoy.
4Q’s net profit impacted by higher operating expenses
Compared to 4QFY13, revenue grew 10.3% driven by higher selling prices and domestic sales volume (+5.1% yoy) as 4Q13 volume declined substantially due to the full quarter impact of the price hike. Despite stronger revenue, net profit declined 0.9% yoy mainly due to higher marketing expenditure and one-off costs arising from the discontinuation of cigarette rations for employees.
Source: CIMB Daybreak - 17 February 2015
Target RM60.80 (Stock Rating: REDUCE)
BAT’s FY14 net profit was in line with our (98% of full year forecast) and consensus’ estimates (97%). The stronger results were driven by higher selling prices amid falling sales volumes and lower operating expenses. Given the in-line results, we maintain our yoy decline FY15-16 net profit forecasts. Our DCF-based target price is reduced as we roll over our valuation by a year. We also maintain our Reduce recommendation as we believe that legal cigarette volumes will continue to be under pressure, while BAT’s ability to dictate future cigarette price hikes may have eroded somewhat of late. BAT declared a final single-tier interim DPS of 78 sen, making up to a total full DPS of 309 sen, in line with our forecast. We prefer the brewers.
Stronger full-year results driven by higher selling prices
BAT’s FY14 revenue increased 6.2% yoy, while its net profit rose 9.5% yoy. Although domestic and contract manufacturing volume dropped by 3.7% and 14.8% yoy, respectively, the higher selling prices (up by RM1.50/pack in Nov 2013 and Nov 2014) were more than sufficient to counter the drop in sales volume. The weak domestic volume of BAT (-4.8% yoy based on In-Market Sales statistics) was impacted by down-trading in the market and in line with the overall reduction in legal market consumption (-4.4% yoy) which caused BAT’s market share to decline by 0.7% pts to 61.2%, while the weak contract manufacturing volume was largely due to the reallocation of production from Japan to another manufacturing facility and lower demand from the Philippines. The loss of domestic market share was also due to the price disparity between its brands and those of its competitors when it raised its prices for two weeks in September. The stronger revenue, coupled with the absence of non-recurring leaf restructuring expenses registered in 2013 and the implementation of the additional productivity savings in the production process, pushed net profit higher by 9.5% yoy.
4Q’s net profit impacted by higher operating expenses
Compared to 4QFY13, revenue grew 10.3% driven by higher selling prices and domestic sales volume (+5.1% yoy) as 4Q13 volume declined substantially due to the full quarter impact of the price hike. Despite stronger revenue, net profit declined 0.9% yoy mainly due to higher marketing expenditure and one-off costs arising from the discontinuation of cigarette rations for employees.
Source: CIMB Daybreak - 17 February 2015
