Analysts positive on JTI’s Winston

Tags: Affin Research | Brokers Call | CIMB Research | JTI

Written by Financial Daily

Tuesday, 26 May 2009 11:00

ANALYSTS are positive on the improving fortunes of tobacco player JT INTERNATIONAL BHD [] (JTI) following the stronger-than-expected performance of its value-for-money (VFM) Winston brand during 1QFY09.

“We were pleasantly surprised with Winston’s continued volume expansion against a shrinking industry. The VFM brand chalked up around 9% year-on-year (y-o-y) growth despite a 9% pullback in total industry volumes (TIV),” said CIMB Research.

Affin Research noted: “As a gauge, BRITISH AMERICAN TOBACCO (M) [] Bhd (BAT) value brand Pall Mall’s volume declined by 12.4% q-o-q and 18.7% y-o-y during the corresponding period. We believe some of Winston’s gains came at the expense of Pall Mall.”

As a result of Winston’s better performance, JTI saw its market share rise by one percentage point (ppt) to 21% for the quarter under review compared to 20% in 4QFY08.

“In contrast, competitor Philip Morris International lost market share by an estimated 1.8 ppt q-o-q and 1.6 ppt y-o-y to 12% in 1Q09. BAT’s market share, based on JTI’s furnished distributor-to-trade data, is estimated at 67% in 1Q09, a gain of 0.7 ppt on a q-o-q basis,” said Affin.

However, CIMB stated that this improvement in JTI’s Winston and Mild Seven brands came at the expense of the rest of its product line.

“JTI’s other brands are flagging, with Camel’s volume plunging 44% y-o-y, partly because of a knee-jerk reaction to the pictorial health warning on its packs. Camel was the first of JTI’s brands to carry the health warnings on Jan 1, 2009. That said, we believe that the pictorial health warning was not the sole reason for Camel’s double-digit volume contraction. Being one of JTI’s weaker brands, Camel has been falling out of favour over the past few quarters,” said CIMB.

Affin maintained its buy recommendation on JTI with a target price of RM5.

“We remain positive on JTI for its resilient quality, cash nature of its business, high dividend yield and ability to improve market share. While JTI lags behind BAT in stock liquidity, valuations are less rich. Its value brand Winston is on track to be a potential long-term winner,” said Affin.

CIMB maintained its underperform recommendation on the counter with a target price of RM4.05, stating that the industry will continue to undergo challenging times.

“JTI reaffirmed our view of tough operating conditions for the industry and expects a deeper contraction in total industry volume this year relative to 2008,” said CIMB.

JTI rose six sen to close at RM4.36 yesterday.

This article appeared in The Edge Financial Daily, May 26, 2009.

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Last Updated on Tuesday, 26 May 2009 11:01

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0 #1 Allen Tan 2009-05-27 01:07 great report.

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