Cigarette price hike fails to lift BAT shares

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KUALA LUMPUR (Nov 5): British American Tobaco (Malaysia) Bhd (BAT) saw a slight gain in its share price in early trade but lost ground subsequently on news that the cigarette maker has raised selling prices following an excise duty hike that was announced last Saturday.

At 11.40 am, BAT shares were down 6 sen to RM67.80 with 6000 shares done. The stock was one of the top gainers on the local bourse this morning.

In a note, AmResearch said it was maintaining its "hold" call on BAT with an unchanged fair value of RM70.60 per share.

"We believe that BAT’s margins would remain intact as we believe the price increase is more than sufficient to absorb the impact of the duty hike," it said.

The research outfit expects BAT’s earnings to shrink by 1% in current financial year ending Dec 31, 2014. But earnings recovery is expected after that.

"After imputing the higher excise duty, latest pricing structure and our downward revised total industry volume assumption, we have fine-tuned our FY14F-FY16F earnings forecast by -1% to +3%," it added.

To recap, BAT announced that effective today, the retail selling prices of its 20-stick premium will be raised by 12.5% to RM13.50 from RM12.00 and aspirational premium packs would increase by 14.3% to RM12.00 from RM10.50 (+14.3%), respectively.

The hikes are in response to the government’s move to increase the tobacco excise duty by three sen/stick, or +12%, beginning Nov 1, 2014. This brings the total tobacco excise duty to 28 sen/stick.