Thursday, July 19, 2018

BAT: Green Shoots of Recovery Sighted

Result Update

For QE30/6/2018, BAT's net profit rose 23% q-o-q but dropped 16% y-o-y to RM96 million while revenue dropped by 9% q-o-q or 17% y-o-y to RM638 million.

Revenue rose 6.5% q-o-q due to volume growth of 4.8% versus the first quarter of 2018. The Group registered a market share of 57.2% (new reporting vs. 53.5% at old reporting) in the second quarter of 2018 (based on restated legal market share), despite a 1.0ppt-decrease in market share registered by Dunhill to 39.7% from 40.7% in the first quarter 2018 (Note: The correction of 1.0ppt versus preceding quarter was partially due to the growth of Value for Money (VFM) segment and the continuous pressure of high levels of illegal and quasi legal (illegal tax stamps) trade.

Value for money brands increased its market share by 0.2ppt and Aspirational Premium brands increased their market share marginally by 0.2ppt.  This improving volume performance was the main driver for the second quarter revenue and gross profit growth of 6.5% (RM41 million) and 8.7% (RM 17 million) respectively, when compared to the preceding quarter.

Operating expenses were 9.7% (or, RM6 million) lower than preceding quarter. Operating expenses dropped due to lower overhead costs driven by cost base transformation initiatives the Group has undertaken and timing of other operating expenditure. As a result, Profit from Operations in the second quarter of 2018 grew 17.1% (RM22 million) when compared to the preceding quarter.

Table: BAT's last 8 quarterly results

BAT's revenue grew for the first time after declining for the past 3 years. Profits have been declining in a zig-zag fashion - with the magnitude determined by provisioning exercise or timing of expenses.

Graph: BAT's last 45 quarterly results


BAT (closed at RM33.68 yesterday) is now trading at a PER of 22 times (based on the last 4 quarters' EPS of 151.7 sen). BAT has paid out quarterly dividend payment totaling of 154 sen over the past 4 quarters; thus giving a Dividend Yield of 4.6%. It is encouraging to note that dividend increased to 35 sen from 33 sen in QE31/3/2018.

Technical Outlook

BAT is still in a long-term downtrend line, with resistance at RM37.80-38.00.

Chart 1: BAT's weekly chart as at July 19, 2018 (Source:

Chart 2: BAT's monthly chart as at July 19, 2018 (Source:


Based on possible turnaround in financial performance and increased dividend payment, BAT is now worth considering for long-term investment. However its next upleg will only begin once BAT managed to break above its downtrend line at RM37.80-38.00.

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.

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