Yesterday BAT went below its overnight price at around 9.41am. It continued its decline throughout the day and closed at RM45.44. It was the top loser on Bursa- losing RM2.46 or 5%!
A quick check revealed that the likely causes for the selldown are the concern about the likelihood of prices of cigarettes going up from RM17 presently to RM21.50 (here) and the proposal to raise the minimum age for buying cigarettes from 18 to 21 (here). These measures are supposedly intended to reduce the consumption of cigarettes- which is all very good. But, the government must do more to curb the trade in illicit cigarettes. Higher cigarette price has been a boon to that trade which saw the percentage of illicit cigarettes capturing more than 50% of total cigarettes consumed in Malaysia. If we don't tackle this trade, we will collect less revenue from both corporate tax & duties while the incurring higher medical cost to treat various ailments that resulted from long-term smoking but I digress.
Now, back to BAT. The chart looks like this:
Chart: BAT's weekly chart as at Mar 29, 2017 (Source: Kenanga)
BAT is in a downtrend (RR) which is accelerating (R1-R1). The area between RM41-43 is the support for the stock. If you are an investor looking for a decent income stock, you may be tempted to buy at that level. If you are a medium-term speculator who viewed the price movement as a downward channel, you may be tempted to buy at the lower line, R2-R2 (around RM38) and hoping for a rebound to sell at the upper line, R1-R1 (at RM49).
For now, I maintain my existing rating for BAT, i.e. a SELL. However it can be considered as a Trading BUY for a rebound play if it drops to RM39.00-40.00 (the support of a long-term uptrend line).
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.