BAT: Earnings Plummeted

Result Update

For QE31/12/2017, BAT's net profit dropped 45% q-o-q or 74% y-o-y to RM78 million while revenue dropped by 8% q-o-q or 17% y-o-y to RM700 million.

Revenue decreased by 7.5% due to decline in sales volume of 3.0% compared to immediate preceding quarter as well as decline in higher price segment. The Group registered market share growth from 53.6% in the third quarter to 53.9% in the fourth quarter of 2017 with Dunhill registering a 0.7%-decrease in market share to 37.7% while Aspirational Premium brands, Peter Stuyvesant and Pall Mall, increased their market share to 10.9%. The group entered the Value For Money (VFM) segment in October 2017 through the introduction of Rothmans. In the fourth quarter of 2017, Rothmans stood at 1.8% market share and was becoming the fastest growing brand within the VFM segment, exiting 2017 at 2.8% market share.

Operating expenses were 39.1% (RM33 million) higher than preceding quarter. Operating expenses, excluding the provision of impairment for prepaid excise duties of RM21 million, increased 14.9% (RM13 million) versus immediate preceding quarter.

After deducting restructuring expenses of RM1.4 million which consisted of on-going cost of the project and outplacement programs, operating profit declined 44.4% (RM84.1 million) when compared to the immediate preceding quarter.


Table 1: BAT's last 8 quarterly results

BAT's revenue and profits have been on a decline for the past 3 years. There is no sign that these have hit hot the bottom.


Graph: BAT's last 44 quarterly results

Valuation

BAT (closed at RM29.06 yesterday) is now trading at an adjusted PER of 16.9 times (based on the last 4 quarters' EPS of 172.6 sen). BAT has paid out quarterly dividend payment totaling of169 sen; thus giving a Dividend Yield of 5.8%. If BAT's revenue & profits were to stabilize, the stock will be an attractive stock as these multiples are fairly attractive for a well-managed MNC.

Technical Outlook

BAT broke its long-term uptrend line, SS at RM52 in April 2016. In the last 2 months, it broke the psychological support at RM40 as well as the horizontal line at RM38. Today it broke another psychological support of RM30.00. Its next support is at the horizontal line at RM27.


Chart: BAT's monthly chart as at Feb 14, 2018 (Source: Shareinvestor.com)

Conclusion

Based on dateriorating financial performance and bearish technical outlook, BAT is a stock to be avoided. However once the company's revenue and profits have made a bottom, it could be a good stock to invest in as it is a well-managed company.

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.