(Malaysia) Bhd (BAT) continues to operate in a challenging market as the total industry volume continues to decline.Affin Hwang Capital research said in a Friday note that it remains cautious over prospects as the illicit cigarette trade looks likely to stay given enforcement actions that are insufficient to counter its growth.
The research house has a hold call on BAT, and slashed its price target on the share to RM11.50 from RM19.20 previously.
"We trim our 2020-21E EPS forecasts by 7-12% and lower our terminal growth rate to 1% (from 2%), as enforcement activities have failed to yield desirable results," it said.
"Yields of c.8% may not present enough appeal to accumulate the stock given the risk of further earnings contractions, in our view," it added.
In 2019, BAT's revenue fell 11% year-on-year (y-o-y) to RM2.5bil as total legal industry volume shrank 10% from the previous year due to the high level of illegal cigarette incidence.
Its Ebitda margin was down two percentage points over the year, partly on the downtrading towards value-for-money cigarettes.
Minus restructuring costs, core net profit came to RM361.1mil, which was 19.6% lower y-o-y.
The results beat Affin Hwang's and consensus estimates at 109% and 108% of their respective full-year forecasts.
"The variance to our forecast mainly arose from the higher-than-expected seasonal volume sales trend during the final quarter," it said.
