Vape, VFM brands threaten BAT’s earnings



THE rising variety of vape customers and curiosity within the value-for-money (VFM) manufacturers might stay as hurdles for British American Tobacco (M) Bhd (BAT) regardless of the upper income booked in its latest quarter.

Hong Leong Funding Financial institution Bhd (HLIB) mentioned the income improve was because of the low base impact.

“While revenue was higher in the first quarter of 2021 (1Q21), it was in line with the increased legal volumes of 19%, which may seem promising due to a low base effect. Note the 1Q20 revenue figure was the lowest recorded by BAT in over 10 years.

“Two large hurdles still remain for BAT — the rise in vape users, which is estimated to account for more than 10% of the total market in Malaysia, and consumers continuing the downtrading to VFM brands,” the analysis home wrote in a observe yesterday.

HLIB mentioned VFM manufacturers price the identical to supply, however are offered at decrease costs, leading to thinner margins.

It famous that VFM manufacturers are estimated to have grown from 14% of the entire authorized market in monetary 12 months 2018 to about 30% now.

CGS-CIMB Securities Sdn Bhd analyst Kamarul Anwar famous that BAT appeared optimistic of rising gross sales quantity additional.

“Unlike in past years, BAT sounded more optimistic of higher sales ahead, notwithstanding the usual call to the government to enhance enforcement efforts to thwart illicit trade.

“Part of its sales revival plan included augmenting its market position in the premium segment,” Kamarul mentioned in a analysis report yesterday.

He mentioned the gross sales turnaround plan was deemed not possible just a few years in the past. It’s a believable goal now as a result of the Covid-19 pandemic has induced lapsed people who smoke to return to their previous habits.

He mentioned draw back dangers on BAT’s earnings are the plummeting gross sales quantity and the margins narrowing farther from extra downtrading.

BAT Malaysia’s 1Q21 web revenue rose 24.32% year-on-year (YoY) to RM63.11 million, supported by its home quantity progress.

Income elevated 17.75% YoY to RM566.55 million, strengthening the group’s complete market share to 52.3%, backed by its strategic manufacturers comparable to Dunhill, Rothmans and KYO.

HLIB downgraded its suggestion to ‘Sell’ on BAT with a goal worth (TP) of RM11.75, whereas CGS-CIMB referred to as for ‘Hold’ with a TP of RM15.40.

BAT’s shares fell RM1 or 6.35% to RM14.76 yesterday, valuing the corporate at RM4.21 billion.

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