KUALA LUMPUR (Dec 20) : The share price of cigarette manufacturer British American Tobacco (M) Bhd increased by 66 sen or 1.11% to RM60.16 as at 11.19am as defensive investors searched for high dividend yield stocks.
According to Gan Jian Bo, an analyst with OSK Research, when investors become defensive, they will look at high dividend yield stocks especially multinational consumer companies including BAT.
"Companies like BAT, Nestlé (M) Bhd, Dutch Lady Milk Industries Bhd, will be attractive when investors become defensive as they search for high dividend yield," commented Gan when contacted by theedgemalaysia.com.
Besides that, Gan also noted that BAT has a strong corporate governance culture which attracts big funds especially foreign funds. Aberdeen Asset Management plc is one, and it holds 5.0% of BAT's shares, the third largest shareholder of the company.
However, due to the increase in share price of BAT, its dividend yield is expected to have decrease to almost its all time low of 4.1%, according to Gan. Historically, BAT's dividend yield hovers at around 5% per year.
"We value BAT at RM56.22... Undeniably, the company is a shining example of a good corporate governance and dominate market share on the local front.
"However, the industry's growth prospect are clouded with regulatory risks that are likely to intensify after the impending general election," state Gan in his research note on BAT dated Dec 19, 2012.
He said after the 13th general election, which is widely expected to be called in the first quarter next year, there will be a resumption on tobacco cigarette excise duty hike, after the government defers from doing so for more than two years.
Although it is too early to tell, Gan anticipate the succeeding government to hike cigarette excise duty in Budget 2014.
Plus, the government also intents to reduce the level of nicotine inside a cigarette and expand non-smoking area to curb smoking habit among Malaysian.