BAT: Profits Improved Slightly On Lower Revenue

Result Update

For QE31/3/2018, 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 dropped by 9% q-o-q due to decline in sales volume of 3.0% compared to immediate preceding quarter. The Group registered market share growth from 53.9% in the fourth quarter of 2017 to 54.7% in the first quarter of 2018, as Dunhill registered a 0.5ppt-increase in market share to 38.2% while Value for Money brands increased its market share by 1.2ppt to 30% and Aspirational Premium brands increased their market share marginally from 42 to 44% (despite a drop in volume). As a result of the lower volume performance, BAT's gross profit dropped 5.3% q-o-q. Operating expenses were 39.4% (RM40.6 million) lower than preceding quarter- due to the absence of provision of impairment for prepaid excise duties (compared to RM21 million provided in the preceding quarter), lower distribution & marketing cost and timing of other expenses. Lower operating expenses had more than offset the drop in gross profit- leading to a 23.2%-increase in operating profit. Higher operating profit flowed thru to higher PBT, PAT & NP.


Table: BAT's last 8 quarterly results

BAT's revenue has been on a decline for the past 3 years, with no sign of bottoming out. 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

Valuation

BAT (closed at RM33.40 yesterday) is now trading at a PER of 20 times (based on the last 4 quarters' EPS of 164.70 sen). BAT has paid out quarterly dividend payment totaling of 162 sen over the past 4 quarters; thus giving a Dividend Yield of 4.85%. 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 is likely to be still in a long-term downtrend. It is now pressing against the 40-week EMA line at RM33.20.


Chart 1: BAT's weekly chart as at May 21, 2018 (Source: Shareinvestor.com)

The immediate support & resistance are at RM32 & RM36.


Chart 2: BAT's daily chart as at May 21, 2018 (Source: Shareinvestor.com)

Conclusion

Based on a still weak financial performance and a still bearish technical outlook, BAT is a stock to be purchased with caution. 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.