BAT: Earning Recovery Not In Sight Yet

Result Update

For QE31/3/2017, BAT's net profit dropped 62% q-o-q or 34% y-o-y to RM114 million while revenue dropped by 8% q-o-q or 24% y-o-y to RM771 million. Revenue declined 24% y-o-y (or, RM 250 million) in line with volume decline, leading to a Gross Profit deterioration of 27.5% y-o-y (RM97 million).

Operating Expenses dropped 18.1% (or, RM22 million), attributed to timing of spends, lower recharges from related entities as well as overhead savings from cost efficiency initiatives the Group has undertaken.

During the same period, the Group has further recorded a one-off restructuring expenses of RM1.6 million which consists of the on-going cost of the project, outplacement programs and one-off expenses associated with the storage and transfer of unprocessed leaf and raw materials.

As a consequence, the Group registered a decline of 32.8% (or, RM77 million) and 32.3% (or, RM75 million) in Profit from Operations and Profit before Tax respectively.


Table 1: BAT's last 8 quarterly results


Graph: BAT's last 41 quarterly results
  
Valuation

BAT (closed at RM47.06 yesterday) is now trading at an adjusted PER of 20.2 times (based on the last 4 quarters' EPS of 232.7 sen). BAT has paid out quarterly dividend payment totaling of 217 sen; thus giving a Dividend Yield of 4.6%.

Technical Outlook

BAT is trying to find a base at RM40-50 level. With monthly MACD nearly hooking up and downtrend momentum peaking, the bottom is near.


Chart: BAT's monthly chart as at April 20, 2017 (Source: Shareinvestor.com)

Conclusion

Based on weak financial performance and unattractive valuation, BAT is not a good stock for long-term investment. With a tentative bottom in sight, BAT's rating is revised from a SELL to a HOLD.

Note:
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.