PETALING JAYA: While British American Tobacco (M) Bhd (BAT) has met analysts’ earnings estimates for the financial year 2021 (FY21), the company’s outlook isn’t rosy for this year.
Several research houses have cut their earnings estimates for the tobacco group due to the global supply chain disruption.
They also raised concerns of less sales due to the Ministry of Health’s plan to ban the sales of smoking products to individuals born after 2005.
“Although the ban is not expected to take effect immediately, we are of the view that the gradual shrinking of the customer base would be detrimental to BAT.
“With that, we lower our long-term growth rate on BAT from 2.5% to 1.0%,” HLIB Research said in a report yesterday.
Last month, Health Minister Khairy Jamaluddin revealed that the Tobacco and Smoking Control Act will be tabled in parliament with regards to the ban, and to regulate the consumption of vape and e-cigarettes.
CGS-CIMB Research reckoned that the economic reopening would see smokers with less budget for their cigarettes since they have other expenses to think about such as fuel and eating out.
“It is telling that there was downtrading already in the fourth quarter of 2021, as reflected in its gross margin declining 80 basis points quarter-on-quarter (q-o-q) to 25.6%.
“With the disruption in the global supply chain pushing up prices of daily necessities, we are concerned that the q-o-q margin squeeze in the fourth quarter of 2021 presages more downtrading in the 2022 forecast,” it said in a note to clients.
The research house has cut its earnings forecast for BAT FY22 and FY23 by 4%-10% to reflect lower sales volume, more purchases of value-for-money cigarettes and higher marketing expenses for BAT’s vapes.
On BAT’s FY21 performance, CGS-CIMB said the group has benefited from the “stay-at-home boredom” and a “lower supply of illicit cigarettes” that drove its sales volume by 9.7% year-on-year (y-o-y), and turnover jumping 13.9% y-o-y to RM2.6bil.
“Although the market share of its flagship brand Dunhill in the premium segment perked up 1.9% pts in FY21, BAT’s FY21 gross margin crept down from 25.8% in FY20 to 25.6%.
“We suspect this was due to smokers down-trading from the mid-tier segment to the VFM lines,” it said.
Kenanga Research highlighted that BAT’s FY21 results came in line with its estimate thanks to the group’s fourth quarter FY21 strong topline results, the best since FY16.
“Moving forward, we re-emphasis our view that growth will be sustainable given its introduction of less risky products to consumers, products’ household name and strengthening of its VFM segment.
“However, we expect further challenges ahead given the proposal to ban all kinds of cigarettes products to those born after 2005 plus renewed illicit activities in the aftermath of the proposed banning,” it said.
Kenanga said it has revised down its FY22 earnings forecast for BAT by 7% on account of the Cukai Makmur.