The negative deviation was due to the decline in overall market size, lower premium brand mix and down-trading to lower margin value-for-money (VFM) offerings. 1QFY19 net profit was lower by 24% from lower volumes sold and poorer product mix. In the meantime, the management is still in the process of obtaining the pricing approval from regulators for its “heat-not-burn” products to be introduced into the market. Post-results, we cut our FY19/FY20 estimated earnings by 11.1%/12.5% to account for more cautious sales volumes and product mix. Risks to our call include (i) faster-than-expected recovery of legal market share; (ii) lower-than-expected conversion towards less premium brands; and (iii) significant decrease in forex to improve cost of sales.

Source: The Edge Markets May 30, 2019 03:22 UTC