BAT can withstand duty hike:MIDF, 05/10/09

BRITISH American Tobacco (Malaysia) Bhd (BAT) will be able to uphold its performance despite the unexpected increase in excise duty by a sen on each cigarette stick, according to MIMB Investment Bank.

BAT will be supported by its generous dividend payout, the bank said in a research note today.

“We view the increase as a positive surprise as it is the least quantum of increase in comparison to historical trend,” MIMB said, adding that the move might slow down the sales volume decline in the industry.

The Royal Customs and Excise Department received a directive from the Finance Ministry last Thursday on the increase of excise duty on cigarettes by one sen per stick to 19 sen per stick.

The directive came three weeks ahead of the Budget 2010 tabling.

Meanwhile, ECM Libra Investment Research said tobacco players are expected to respond by adjusting their pricing by a bigger quantum to protect profits.

“Cigarette consumption is expected to drop as smokers may smoke less or look for illicit cigarettes,” it said in a research note today.