Highlight BAT, JTI make pricing U-turn

by **Cals** Wed 24 Sep 2014, 02:28

Highlight BAT, JTI make pricing U-turn

Business & Markets 2014

Written by Tang Wei Lynn of theedgemalaysia.com

Tuesday, 23 September 2014 08:47

KUALA LUMPUR: British American Tobacco Malaysia Bhd (BAT Malaysia) and JT International Bhd (JTI Malaysia) yesterday reverted to the old prices for all its cigarette brands, a move that has stunned analysts tracking BAT Malaysia’s stock and the sector.

The country’s top two tobacco players’ about-turn came barely a month after the price of a pack of 20s was raised by RM1, citing the challenging operating environment due to mounting inflationary cost pressure.

In a statement yesterday, BAT Malaysia managing director Stefano Clini said the firm has decided to revert to its old prices.

“Our last price increase was to alleviate mounting inflationary cost pressure amplified by progressive loss of legal domestic volumes over the years to illegal trade, decline in contract manufacturing volume and an overall very competitive trade and distribution channels.

“However, in order to remain competitive, we have decided to revert to our prices before Sept 8,” Clini said.

JTI Malaysia followed suit, saying it is also reverting to its previous prices prior to the change on Sept 12.

“We have revised the prices of our products to their previous prices with effect from Sept 22,” JTI told The Edge Financial Daily, but did not give a reason for its decision.

HLIB Research analyst Grace Chew said the move by BAT Malaysia was unexpected.

“It’s very surprising, for it’s the first time that they are reverting their prices [after an increase],” she told The Edge Financial Daily.

“Note that Philip Morris (Malaysia) Sdn Bhd (PMI) did not, or has yet to, increase their prices this time around. This compares with previous times where all other tobacco players had also followed suit after a week or two,” Chew added.

AllianceDBS Research Sdn Bhd analyst Ian Wan concurred.

“We had expected PMI to [eventually] raise prices sooner or later. We are suspecting that this [latest] move was a reaction to a decision by PMI, which has yet to increase its cigarette prices following both BAT Malaysia and JTI Malaysia’s recent price hikes,” he said.

“This move could also be due to BAT Malaysia’s sales volume having fallen substantially below its [internal] target, as it could be losing some volume or share to PMI,” Wan added, noting that the drop in sales volume could have been in the “mid-teens” level.

BAT Malaysia’s first-half of 2014 volume declined 5.5% compared with the same period last year. However, this was an improvement from the fourth quarter of 2013 volume decline of almost 17% year-on-year, following the excise-led price increase.

Another analyst who declined to be named pointed to government intervention as another possibility for BAT Malaysia’s sudden “U-turn”.

The analyst reasoned that some quarters might have “put the blame” on the authorities for the recent price hike — even before a potential excise duty is announced and heightened by other cost-push inflation consumer sentiments — thus causing the government to intervene.

With the reversal of prices, the price of a pack of 20s is now RM12 for Dunhill, Benson & Hedges and Kent. The Lucky Strike and Rothmans brands are now RM12.50 a pack, while the Peter Stuyvesant and Pall Mall cigarette range is RM10.50 for a pack.

Meanwhile, JTI Malaysia’s cigarettes in the Mevius and Salem range are now RM12 per pack. Winston range cigarettes cost RM10.50 per pack, while Camel is priced at RM11 per pack for filter and RM12.50 per pack for non-filter.

Shares of BAT Malaysia closed up 36 sen or 0.51% at RM70.60 yesterday, giving it a market capitalisation of RM20.06 billion.

This article first appeared in The Edge Financial Daily, on September 23, 2014.