BAT: Sales Dropped Sharply due to MCO Disruption

Result Update

For QE31/3/2020, BAT's net profit dropped 46% q-o-q or 43% y-o-y to RM51 million while revenue dropped by 27% q-o-q or 23% y-o-y to RM481 million.

The sharp drop in revenue was attributed to disruption from the Movement Control Order (MCO) in the last two weeks of quarter one, which caused consumers to turn to cheap, black market cigarettes. Operating expenses were marginally lower due to improvement in operational efficiencies but this was not enough to offset revenue loss, resulting in a decline of 48% q-o-q or 41% y-o-y  in profit from operations to RM71 million. 

Table: BAT's last 8 quarterly results


Graph: BAT's last 53 quarterly results

Valuation

BAT (closed at RM11.72 last Friday) is now trading at a PER of 10.9 times (based on the last 4 quarters' EPS of 107.8 sen). BAT has paid out quarterly dividend payment totaling of 105 sen over the past 4 quarters; thus giving a Dividend Yield of 9.0%. Though its valuation looks attractive, the concern for many investors is whether BAT can stop the continuous decline in both revenue and profits, since the MCO period covers the whole of the next quarter. Only time will tell.

Technical Outlook

BAT broke below its medium-term uptrend line, SS at RM12.60. It may slide to the horizontal line at RM11.00.


Chart: BAT's daily chart as at May 22, 2020 (Source: Malaysiastock.biz)

Conclusion

Based on a weak financial performance and a bearish technical outlook, BAT may be a contrarian stock for long-term investment. All the negative factors could be substantially factored in the share price which is trading at a PER of 10.9 times and a dividend yield of 9.0%.

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.