Kenanga upgrades BAT to to ‘market perform’


KUALA LUMPUR: Kenanga Research upgraded British American Tobacco (M) Bhd (BAT) to “market perform” on the back of progress from measures introduced in Budget 2021 to control contrabands. The research house rolled over its valuation based to FY22 and raised its target price to RM14.80, applying a price-earnings ratio of 16x in line with a minus 0.5 standard deviation over its three-year mean. “In spite of the Budget 2021 being a positive one for BAT with more stringent measures imposed to curb rampant contraband cigarettes, we believe the key matter lies in execution and any meaningful earnings recovery for the stock would only materialise with a sustained clampdown on the illegal cigarettes. “Moving forward, we reiterate our view that the group’s outlook should continue to be clouded by the rampant illicit tobacco issue, with signs indicating such syndicates changing their modus operandi to circumvent the measures introduced in Budget 2021,” said Kenanga. However, it added that growth will be sustainable give its introduction of less risky products to consumers, progressive regulation on Vape products and strengthening of its VFM Products. In 1QFY21, BAT’s core net profit of RM63mil came in at 25% and 23% of Kenanga’s and consensus full-year estimates. Top line improved 18% with domestic volume rising 19% on a decline in the market share of illegal cigarettes following measures introduced in Budget 2021. The group’s domestic volume grew in line with the industry recovery rate with its March 2021 volume growth trajectory outperforming the legal industry by 3ppt. Duty-free sales continued to be impacted due to regional and international travel restrictions from the Covid-19 headwinds.

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