Tobacco - Going Plain, Growing Pain

By Maybank IB Research
13 September 2012

Underweight Tobacco. Regulatory risk on tobacco sector rose  when the  plain cigarette-packaging rule took  a  quantum leap in Australia towards actual implementation. The industry also faces a greater threat
from  the emerging mutatef illicit cigarettes despite  a  recovery in industry volumes in 1H12. Aside from the rising risk, the sector is losing its appeal on lofty valuations and  dwindling dividend yields. Thus, we recommend an Underweight on the tobacco sector. BAT is downgraded to a SELL at  an  unchanged DCF-based TP of MYR55.00 while JTI remains a HOLD with an unchanged DCF-based TP of MYR6.70.