Friday, October 21, 2011

BAT- not smoking hot


Background

British American Tobacco Bhd (BAT) is involved in the manufacture & sale of cigarettes. It is the largest cigarette company in Malaysia. For more, check out its website.

Recent Financial Performance

From the table below, we can see that BAT's net profit declined by 4% q-o-q but rose by 3% y-o-y to RM176 million for QE30/9/2011. Its turnover rose by 6% q-o-q or 11% y-o-y to RM1.104 billion.


Table: BAT's 12 quarterly results

From Chart 1, we can see that BAT's bottom-line has been flattish for the past 3 years. Despite the increased top-line over the past 3 quarters, the bottom-line remained stubborn unchanged. The reason is the steady erosion of its profit margin (see Chart 2).


Chart 1: BAT's last 19 quarterly results



Chart 2: BAT's profit margin for the last 19 quarterly results

Valuation

BAT (at RM44.38 as at 4.00pm) is now trading at a PE of 17.5 times (based on last 4 quarters' EPS of 253 sen). At this level, BAT is deemed fully valued. Some may find BAT's dividend yield attractive at 6.2%.

Technical outlook

BAT has been range-bound between RM43 & RM47 for the past one year. It is also in an uptrend line with support at RM41.50.


Chart 3: BAT's daily chart as at Oct 20, 2011_4.00pm (Source: Quickcharts)

Conclusion

Based on steady but unexciting financial performance, fully valuation & unexciting technical outlook, BAT is rated as a HOLD. You may time your buying at RM43 & sell at RM47, after receiving your handsome dividend. If you can get in right, the capital gain plus the dividend income could yield a return of 15% per annum.
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8 comments:

  1. sookpengFriday, October 21, 2011 5:57:00 PM

    Alex,
    Observed BLDPLNT has moved up quite a bit over the last few days. Any comment ?

    ReplyDelete
  2. cherngSaturday, October 22, 2011 12:46:00 PM

    hi alex,

    i watch closely abt deleum recently. it has relatively small volume traded daily, and share prices seem steadily stand at 1.45-1.50.. i am not sure it's good for long term investment or not, because its business is related to oil and gas, which is not stable. but as what i studied, the fundamental of this stock is quite good, and paying good dividend too.

    How u think if it is suitable for long term investment?

    ReplyDelete
  3. aroSunday, October 23, 2011 7:45:00 PM

    Dear Alex, pls give yr views on COASTAL which has been rather quiet after its share split.

    Secondly, the potential of CCB as its share has been bashed to about RM3.20 and has not recovered since then. Any chance of capital repayment for the financial year? TQVM

    ReplyDelete
  4. AnonymousMonday, October 24, 2011 9:31:00 AM

    I've notice that Eng major shareholder; Teh Eong Liang, former CEO of Eng is selling its stake through open market so much so until he ease to be substantial shareholder <5% now and will likely to continue dispose off share now, already seek intention to deal with share during close period

    As Teh Eong Liang (from 6.31% to 4.73% now)is brother to current to CEO Teh Yong Khoo (9.98%)and son of Low Yeow Siang (13.24%), which collectively is shareholder of TYK, a party to takeover Eng at 2.50, it is thus highly unlikely now that the takeover will be abort soon.

    ReplyDelete
  5. Alex LuMonday, October 24, 2011 11:13:00 AM

    Hi hng

    The information that you have gathered on Teh Eong Lian; his sale of ENG shares; and his intention to deal with the shares have a very negative implication. As you have rightly pointed out, he is a substantial shareholder & a person linked to the party that is privatizing ENG. His action is an indication that the deal will be either aborted or the price will be adjusted significantly.

    I will post more on this development shortly.

    ReplyDelete
  6. Alex LuWednesday, October 26, 2011 11:54:00 AM

    Hi aro

    COASTAL is still in an uptrend line, with support at RM1.60.It tested that support recently and it has recovered some lost ground. I think it is a good buy at the present level.

    ReplyDelete
  7. Alex LuWednesday, October 26, 2011 12:00:00 PM

    hi This is the day!

    As you have rightfully pointed out, Deleum is a quiet stock & trades without any clear direction at about RM1.40-1.50. If you look at the chart, it has actually been dropping since hitting a high of RM2.20 in April 2009. It is in a downward channel, with support at RM1.30 & resistance at RM1.75. The technical outlook is still bearish & this justifies looking into the account in greater depth. Is there something not right with this company?

    ReplyDelete
  8. Alex LuWednesday, October 26, 2011 12:05:00 PM

    Hi sookpeng

    BLDPLNT is in a nice intermediate term uptrend line with support at RM5.50. It also has good support at the 200-day SMA line at RM5.90. Medium-term downtrend line resistance is at RM6.70.

    I think it is a trading at the support indicates above. However, it has run up quite a lot and we must be watchful of a potential breakdown of these support.

    ReplyDelete