BAT: Earnings Rebounded On One-Off Gain

Result Update

For QE31/12/2016, BAT's net profit rose 41% q-o-q or 53% y-o-y to RM299 million while revenue dropped by 10% q-o-q or 21% y-o-y to RM841 million. Revenue declined 10% q-o-q and Gross Profit declined 17.1% q-o-q due to 33.3%-reduction in contract manufacturing volumes and 4.3%-drop in domestic and duty-free volume.

Operating Expenses rose 10.5% q-o-q largely driven by higher marketing expenditure due to timing of spend, which was partially offset by lower recharges. During the same period, the Group recorded a restructuring income of RM132 million which consists of a gain from the disposal of the land and building which the factory operation is located (RM159 million) which was partially offset by provision for employee redundancy related costs (RM8 million), impairment of asset (RM3 million), provision for obsolete raw materials (RM4 million) and leaseback rental (RM13 million).

As a result, Profit from Operations increased by 27.7% (RM69 million) when compared to the previous quarter. If the impact of one-off restructuring expenses and income is excluded, Profit from Operations would actually decline by 25.7% (RM64 million).


Table 1: BAT's last 8 quarterly results


Chart 1: BAT's last 40 quarterly results
  
Valuation

BAT (closed at RM48.78 yesterday) is now trading at an adjusted PER of 19.4 times (based on the last 4 quarters' adjusted EPS of 252 sen). BAT has paid out quarterly dividend payment totaling of 232 sen; thus giving a Dividend Yield of 4.8%.

When compared to HEIM & Carlbg, BAT's PER & DY are less attractive. HEIM & Carlsbg have higher DY of 5.7% & 5.1% and lower PER of 18.3x & 18.6x respectively.

Technical Outlook

BAT has recently tested its long-term uptrend line, SS support at RM40.00-41.00 and then rebounded.


Chart 1: BAT's monthly chart as at Feb 16, 2017 (Source: MalaysiaStock.Biz)

BAT's upside is capped by the intermediate downtrend line, RR at RM49.00-50.00.


Chart 2: BAT's weekly chart as at Feb 16, 2017 (Source: MalaysiaStock.Biz)

Conclusion

Based on the poorer financial performance and unattractive valuation, BAT's current rating as a SELL is maintained.However if BAT were to slide to RM49.00-50.0039.00-40.00, it could be a Trading BUY for a rebound play.

Note:
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