Bet for $BAT / 4162 (BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD): an opportunity for Cigar Butt Investing?
- FY 2023 Total revenue for BAT Malaysia declined by 11% to RM2.31 billion compared to RM2.60 billion in 2022. The decrease was mainly due to a volume decrease of 12.9% when compared to 2022 as a result of the contraction of the legal industry as well as the Group’s market share decline.
- Gross profit margin declined by 1.5% from 26.1% (RM678 million) in 2022 to 24.6% (RM568 million in 2023) owing mainly to lower margins from New Categories.
- However, BAT Malaysia Group remained committed to paying dividends at a level above 90% of its earnings.
- In 2023, They declared four quarterly interim dividends amounting to 63 sen per share, thereby maintaining a dividend payout ratio of 92%, which roughly translate to DY 7% based on current share price.

Product & Business Overview Performance:
- They currently offer high-quality tobacco brands such as Dunhill, Peter Stuyvesant, Rothmans, KYO, Luckies, tobacco heating products such as glo™ and vapour products such as Vuse.
- Their current strategy: focusing on their New Category products, fuelled by investment from the continued delivery of the traditional tobacco business/ combustibles.
- BAT Malaysia Group’s total market share was 0.5% lower in 2023, mainly attributed to the delisting of the Kent and Pall Mall brands during 2022 as well as the impact of continued downtrading.
- Dunhill continues to maintain its unrivalled No.1 position in Malaysia, with more than double the share of the second biggest brand in the market.
- Despite facing segment challenges, premium and aspirational premium portfolio continues to perform well.
- The Group’s Value-for-Money (VFM) brands, Luckies and Rothmans, are showing a strong performance. Their VFM portfolio remained a key growth driver in 2023, registering Share of Market (SOM) increase by 1.7% compared to the previous year.
- Rothmans continues to spearhead BAT Malaysia’s growth in the VFM segment, achieving a double-digit market share for the first time in August at 10.1%. Additionally, with a 1.6% growth in its segment share, Rothmans has established itself as the third-largest legal brand in Malaysia.
- In Q3 2023, BAT Malaysia launched a new brand in August, Luckies, with 2 SKUs, to bolster growth in the VFM segment.
- Premium Segment - The Peter Stuyvesant brand maintains stable share performance of a growth in share of segment by 2 percentage points (ppt), despite the implementation of a price increase of RM0.30 in Q3 2023.
- They also developed New Categories of reduced-risk* alternatives to smoking. The revenue contribution from New Categories was not material as the Group only entered into New Categories in the latter half of 2023.
- Non-combustible portfolio: flagship vape brand, Vuse - #1 Global Vaping brand at over 6,600 convenience stores and vape specialist outlets throughout Malaysia and from authorised online store on Lazada.

Cost optimisation and operational updates:
- Recent transition to a new warehouse, increasing from 40,000 square feet to 64,000 square feet.
- Optimising transportation strategy by introducing a "Milk Run" approach, streamlining delivery process and reducing transportation costs, among others.
- Implemented Packaging Optimisation Initiatives – RM1.5 million Annualised Savings

Challenges:
- Economic headwinds and continued inflationary pressures that reduced the disposable income of consumers. Consumers then downtrade or choose alternative nicotine products such as vapour.
- Lower industry volume in the combustible space driven by the increase in vapour usage as well as the persistent tobacco black market. The tobacco black market, currently still at 55.6% (the tobacco black market results in an annual loss of RM5 billion for Malaysia due to uncollected taxes).

IMO, I wouldn't have bat an eye for them if it weren't for their high DY and share price movement because I'm not a smoker (neither do I encourage it).

😶