KUALA LUMPUR: Affin Hwang Capital has maintained its cautious outlook on British American Tobacco (Malaysia) Bhd due to the uncertainties surrounding the regulations of vape products and generational end-game policies.
Inflationary pressures on consumer spending might also have an effect on BAT Malaysia, said Affin Hwang.
The firm said BAT Malaysia's financial year 2022 (FY22) revenue had fallen to RM2.6 billion. This was largely attributable to a 0.8 per cent decline in overall market share as a result of the delisting of Kent and Pall Mall brands, a downtrading trend and a one-off benefit in volume during the route-to-market model transition in FY21.
Affin Hwang said BAT Malaysia's FY22 performance was slightly supported by 4.8 per cent year-on-year (YoY) increase in legal domestic volume growth and a 0.6 percentage point decline in illegal incidence.
"Its core net profit declined to RM290.7 million, which was broadly within our and consensus estimates.
"While the group was able to maintain its FY22 earnings before interest, taxes, depreciation and amortisation (ebitda) margin at 16.3 per cent on the back of cost optimisation initiatives, FY22's bottom line was also adversely affected by higher interest expense, higher restructuring expense in line with its fit-for-growth strategy and higher tax expense with the impact of the Prosperity tax," it said.
Quarterly, BAT Malaysia posted RM770.7 million revenue due to higher sales volume fuelled by the year-end seasonality effect.
"On a full-year basis, the group's market share had declined overall to 51.6 per cent of the legal market but on a quarterly basis, it showed a marginal improvement having regained 0.1 percentage point from the 51.5 percent recorded in the third quarter (Q3) of 2022," it said.
Affin Hwang downgraded its call on BAT Malaysia to "Sell" with a target price of RM10.41.
"Upside risks to our view include an expansion in the group's total market share due to any official finalised regulatory changes and effects on product portfolio from a change in consumer behaviour," it said.