BRITISH American Tobacco (Malaysia) Bhd’s (BAT) RM206 million 1Q09 net profit came within market expectations but its prospects remain hazy, said Maybank Investment Bank (Maybank IB).

The research house, however, said BAT’s 1Q09 sales volume fell 12.5% year-on-year (y-o-y) to 2.32 billion sticks, worse than the 9% y-o-y decline to 3.83 billion sticks by the “big three” multinational manufacturers.

“This also meant market share loss for BAT to its rivals and illicit trade. Only continued productivity gains and a better product mix helped net profit decline by less than the sales volume decline,” it said.

Maybank IB said anti-smoking measures and destocking by retailers conserving cash were blamed for the poor 1Q09 sales volume.

Maintaining its hold recommendation on the stock at RM45 with a discounted cash flow-based target price of RM44.75, the research house said BAT’s forecast gross dividend yield of 8.5%-9.2% provides comfort to seekers of defensive dividend yields.

The research house also said the impact of graphic anti-smoking advertisements run by the Ministry of Health (MOH) in the mainstream press, and mandatory pictorial health warnings on cigarette packs, should moderate moving forward.

“Expect a 4%-6% sales volume decline in full-year 2009,” it said.

BAT’s market-leading premium brand Dunhill led the premium segment, growing its market share two percentage points to 71% at the expense of the Value segment.

Dunhill’s seemingly timeless resilience, however, does not hide the challenges facing BAT in the more price-sensitive value segment, it said.

It said BAT recently received an MOH directive to standardise the unit pricing for 25’s and 14’s to that of 20’s, resulting in immediate price increases.

“In contrast, the locally produced sub-value segment continues to flourish, including a seeming attempt to attract new consumers via offering premiums and more ‘premium’-positioned products. BAT is consolidating its wide brand portfolio to save on costs,” it said.