KUALA LUMPUR: British American Tobacco (M) Bhd's (BAT) earnings outlook is expected to remain challenging due to the lack of robust earnings streams from new segments.
Hong Leong Investment Bank Bhd (HLIB) said despite a one per cent decline in illicit market share, legal combustible volume for the financial year 2023 (FY23) experienced a decline as the returned volume shifted towards the e-cigarette category.
The bank anticipates this trend to persist, potentially limiting BAT's combustible cigarette sales rebound if the illicit market share, currently at 55.6 per cent, regains traction.
"The expansion of the vape market at the expense of traditional cigarette market share, has led to the dispersion of sales among multiple vape brand owners, thereby putting pressure on BAT's sales performance. "Given the lack of robust earnings streams from new segments to fill the void left by the combustible cigarette segment, we opine that BAT's earnings outlook remains challenging," it said in a note.
Meanwhile, HLIB said BAT has registered a fourth quarter (Q4) 2023 core net profit of RM45.5 million that brought FY23 sum to RM193.1 million.
The result was within the bank's expectation but below consensus, accounting for 95 per cent and 93 per cent of full-year forecasts, respectively. "FY23 core net profit was arrived at after adjusting EIs of RM1.7 million (mainly comprising impairment of financial assets, forex loss, and gain on derivative).
HLIB has a "Hold" recommendation on the stock with an unchanged target price of RM9.22.