70% B+ Fundamental Analysis for BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD. Page 1 of 12. Fundamental Analysis: CONSUMER PRODUCTS Sub-Sector:

Transcription

1 Page 1 of 12 Fundamental Analysis for BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD Fundamental Analysis: 70% B+ Company Name: BRITISH AMERICAN TOBACCO (MAL Board: Main Board Stock Code (Bursa): BAT FBMKLCI: TRUE Bloomberg: ROTH:MK Reuters: BATO.KL Industry: CONSUMER PRODUCTS Stock Grade: Investment Grade Sub-Sector: TOBACCO COMPANIES Company Description: MANUFACTURE; IMPORTATION & SALE OF CIGARETTES PIPE TOBACCOS & CIGARS. Date of Analysis: 25-Oct-11 Price: Income Statement Analysis (2010): Year over year, British American Tobacco Malaysia Bhd has seen little change in their bottom line (from 746.8M to 731.1M). Top line revenues were also little changed (from 3.9B to 4.0B.) On the positive side the company has been able to reduce the percentage of sales devoted to the cost of goods sold from 6.59% to 5.75%. Balance Sheet Analysis (2010): Although debt as a percent of total capital decreased at British American Tobacco Malaysia Bhd over the last fiscal year to 57.00%, it is still in-line with the Tobacco industry's norm. Additionally, there are enough liquid assets to satisfy current obligations. Accounts Receivable are among the industry's worst with 8.42 days worth of sales outstanding. This implies that revenues are not being collected in an efficient manner. Last, British American Tobacco Malaysia Bhd is among the least efficient in its industry at managing inventories, with days of its Cost of Goods Sold tied up in Inventories. Income Statement Analysis (Sep-11): Compared to the same quarter last year, British American Tobacco Malaysia Bhd has been able to grow revenues from 993.6M to 1.1B. Most impressively, the company has been able to reduce the percentage of sales devoted to selling, general and administrative costs from 13.68% to 13.02%. This was a driver that led to a bottom line growth from 170.7M to 176.3M. Balance Sheet Analysis (Sep-11): This company's capital structure relies on a level of debt that is comparable with the Tobacco industry's norm, at 56.95%. Additionally, an examination of near-term assets and liabilities shows that there are enough liquid assets to satisfy current obligations.. Accounts Receivable are typical for the industry, with days worth of sales outstanding. Last, British American Tobacco Malaysia Bhd is among the least efficient in its industry at managing inventories, with days of its Cost of Goods Sold tied up in Inventories.

2 Page 2 of 12 Shareholding Analysis: BRITISH AMERICAN TOBACCO HOLD (M) B.V. is the major shareholder.

3 Score Card - Fundamental Analysis Item W R S Remarks 1 - History of Consistently Increasing Earnings, Sales & Cash Flow 1.1. Sales Revenue & Net Income After Tax increasing in the past 5 years Net Cash from Operations increasing in the past 5 years EPS increasing in the past 5 years Growing/consistent in revenue and net profit in the last 5 quarters The current quarter's EPS is up more than % from the same quarter the year before EPS increasing in the past 5 quarters Sustainable Competitive Advantage & Strong Future Growth Drivers 2.1. Strong brand, monopoly or barriers to entry Gross Profit Margin (> 40%) & Net Profit Margin (> 10%) Consistently high ROE > 15% Able to deliver double-digit growth in next 3-5 years ROIC > 15% Strong future growth drivers Potential Risks Conservative Debt 3.1. Long term debt < 4 times Net Profit Debt/Equity Ratio < Current Ratio > Healthy Cash Flow 4.1. Working capital increase slower than sales Short & declining "Cash Conversion Cycle" Free Cash Flow / Sales > 5% Management and Institutional Investors are Holding/Buying Stock 5.1. Management and Institutional Investors are Holding/Buying Stock Overall Score 70%

4 Market Timing Buy Criteria Criteria 1. The current quarter's EPS is up more than 15% from the same quarter the year before. 2. Price is below Intrinsic Value (20%) 3. Current EY% or Rolling 4Q EY% > 6% 4. Current DY% or Rolling 4Q DY% > 6% 5. Stock price breaks out of consolidation/dip on an uptrend. 6. Comparison of P/B ratio (for Financial stocks only) 7. Company owner, EPF, Khazanah and PNB heavily buying Applicable Remarks Sell Criteria Criteria 1. Current EY% or Rolling 4Q EY% < 6% for more than 2 years 2. Current DY% or Rolling 4Q DY% < 6% for more than 2 years 3. Quarterly EPS drop for 5 consecutive months 4. Fundamental of business turns unattractive or bad 5. Found a better opportunity to replace this stock 6. The stock drops near to my average cost. 7. Company owner, EPF, Khazanah and PNB heavily selling. Applicable Remarks

5 1 - History of Consistently Increasing Earnings, Sales & Cash Flow 1.1. Sales Revenue & Net Income After Tax increasing in the past 5 years. 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , Total Revenue Net Income 1.2. Net Cash from Operations increasing in the past 5 years EPS increasing in the past 5 years Even if EPS growth is not trendy, but it is acceptable if 3-Y or 5-Y EPS growth rate is more than 15%

6 1.4. Growing/consistent in revenue and net profit in the last 5 quarters. 1,200,000 1,000, , , , ,000 0 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Turnover Net Profit 1.5. The current quarter's EPS is up more than 15% from the same quarter the year before. EPS Growth: 3.18% 1.6. EPS increasing in the past 5 quarters Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 EPS

7 2 - Sustainable Competitive Advantage & Strong Future Growth Drivers 2.1. Strong brand, monopoly or barriers to entry 1. Does it have a monopoly situation? YES 2. Does it have a strong leading brand? VERY STRONG 3. Does it have a high barriers to entry? VERY HIGH 4. Does it have market leadership? VERY STRONG 2.2. Gross Profit Margin (> 40%) & Net Profit Margin (> 10%) Gross Profit: Profit After Tax: 1,488,800 Sales Revenue: 3,965, ,111 Minority Interest: 0 Gross Profit Margin: 38% Net Profit Margin: 18% 2.3. Consistently high ROE > 15% Able to deliver double-digit growth in next 3-5 years LT Growth Rate: 2.16

8 2.5. ROIC > 15% % % % % 80.00% 60.00% 40.00% 20.00% 0.00%

9 3 - Conservative Debt 3.1. Long term debt < 4 times Net Profit Long Term Debt: 650,000 Long Term Debt < 4 times Current Net Earnings (After Tax): Debt/Equity Ratio < 1 Debt/Equity Ratio: Current Ratio > 1 Current Ratio (MRQ): 1.91

10 4 - Healthy Cash Flow 4.1. Working capital increase slower than sales 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% Revenue Growth YOY Working Capital Growth YOY 4.2. Short & declining "Cash Conversion Cycle" Cash Conversion Cycle Free Cash Flow / Sales > 5% Free Cash Flow/Sales: 22.64%

11 Market Timing 1. The current quarter's EPS is up more than 15% from the same quarter the year before. EPS Growth: 3.18% 2. Price is below Intrinsic Value (20%) Estimated IV: 41 to 46 Discount from IV: -9.7% 2.2% Discounted Cash Flows: Dividend Discount: Valuation by Estimated EPS and PE (Reuters): Valuation by Estimated EPS and PE (Self Estimation): Valuation by Price-to-book Ratio: Fair Value from Analysts 3. Current EY% or Rolling 4Q EY% > 6% Cashflow growth is not consistent Dividend growth is almost flat 2011: : : : : : OSK188 suggested as fair value 1.72 CU EY%: Current DY% or Rolling 4Q DY% > 6% CU DY%: 5.34

12 Future Growth Drivers, Potential Risks and Analysts' Reports Reported Date Subject Details Type Created Date 10/21/2011 BAT (FV RM NEUTRAL) See attachment Analyst Report 10/21/2011 9MFY11 Results Review: Puffing on 7/22/2011 BAT (FV: RM NEUTRAL) 1HFY11 Results Review: Dividend Bonanza See attachment Analyst Report 8/14/2011