CIMB Retains Reduce on British American Tobacco

Source from:  The Star Online‎ 04/20/2015

CIMB Equities Research is maintaining Reduce on British American Tobacco (BAT) with a lower dividend discount model-based target price of RM56.20.

This is 17.2% below the last traded price of RM67.88.

To recap, on April 17, BAT announced it had reduced its selling prices to pre-Goods and Services Tax (GST) levels in order to remain competitive against JTI, which kept its selling prices unchanged after GST was implemented.

This is BAT's second price reduction in less than a week. The recent price competition in the industry shows that price hikes may no longer be effective to raise profits.

CIMB Research cut its FY15-17 EPS forecasts by 2%-3% to factor in lower selling prices and higher sales volume from lower loss of market share.

"Maintain Reduce on BAT, with a lower dividend discount model-based target price. The second price cut and competitive environment are key de-rating catalysts. We prefer the brewers for dividend yield plays," it said.

BAT's premium cigarettes are now being sold for RM13.50 a pack, while its value-for-money (VFM) cigarettes are being sold for RM12 a pack.

This is the second time that BAT has reduced prices in less than one week.

On April 1, BAT raised its prices by RM0.50/pack due to the implementation of GST. However, it reduced its selling prices by 20 sen a pack after two weeks to remain competitive against PMI, which decided not to raise selling prices as much as BAT, and JTI, which kept its selling prices at pre-GST levels. Enditem