Hot Stock BAT top gainer on price hike, upgrades

Hot Stock BAT top gainer on price hike, upgrades
Business & Markets 2013
Written by Kamarul Anwar of theedgemalaysia.com
Monday, 03 June 2013 12:11


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KUALA LUMPUR (June 3): BRITISH AMERICAN TOBACCO (M) [] Bhd (BAT) rose 1.38% to become the biggest gainer in morning trade.

The gains came on BAT's decision to increase its cigarette prices by 30 sen a pack. At 11:28 am, BAT was up 88 sen to RM64.22 with a trade volume of 20,100.

The counter was earlier traded between RM64 and RM65.

Bernama reported yesterday that BAT had announced a 3% increase in the price of all its cigarette brands beginning today.

"As with all other companies, BAT is faced with inflationary pressures, labour and input costs, resulting in rising operating costs over time,” said group managing director Datuk William Toh.

In a tobacco sector note today, Hong Leong Investment Bank (HLIB) analyst Grace Chew said based on every 1% increase in BAT's cigarette price, the firm's volume declines by 0.76% on average.

“Thus, BAT’s volume could potentially fall by 2.4% or 210 million sticks. Assuming unchanged margins, earnings could fall by 5.3%, bringing its target price (TP) to RM53.29,” said Chew who maintained HLIB's “hold” call on BAT.

However, TA Securities said that historically, BAT has always proactively instituted price increase that either preserves or expands its margin.

According to TA's estimates, the net impact to its earnings forecasts on BAT have been revised upward by 0.4%, 1.6% and 1.1% for the three financial years ending December 31, 2013, 2014 and 2015 respectively.

“On a broader perspective, we remain “underweight” on tobacco sector. Threat of a higher duty on the tobacco sector remains a key downside risk,” TA said.

TA has retained its “sell” rating for BAT but with a higher TP of RM61.21 from RM61.05 previously.