BAT to close down Petaling Jaya factory in restructuring exercise

PETALING JAYA: British American Tobacco (Malaysia) Bhd (BAT), in a surprise move, announced it is shutting down its plant in Petaling Jaya, Selangor, citing the increasingly challenging business environment.
BAT told Bursa Malaysia yesterday that under its business restructuring plan, its factory at Jalan Universiti will be shut down in stages, with completion by the second half of 2017.
About 230 employees will be affected by the winding down of the factory operations. BAT said it will provide benefit packages as well as the option to undergo a career-transition programme for its staff.
Going forward, the company will source tobacco products from its factories regionally for the Malaysian market. Currently, its wholly-owned subsidiary Tobacco Importers and Manufacturers Sdn Bhd manufactures tobacco products and semi-finished goods, such as processed tobacco, at the Petaling Jaya plant.
BAT stressed that the restructuring is in line with its efforts towards realising a new and more sustainable business model amid an increasingly challenging business environment.
“Pursuant to a review and assessment conducted by the management of the company together with the board, the board is of the view that the restructuring is in the best interest of the company,” it said.
BAT pointed out that the high excise environment has ultimately led to a sharp rise in illegal cigarettes and significantly lower legal sales volume, resulting in rising cigarette production costs.
“This increasingly challenging environment requires the company to restructure and transform its business which apart from the winding down of factory operations include the sharpening of its commercial capabilities whilst optimising the supply chain and transactional activities to ensure that BAT remains a competitive consumer-focused market leader,” it explained.
BAT is of the view that the restructuring exercise will have a positive financial impact.
As a result of the winding down of factory operations, the company said, its land will be disposed of by way of a public tender exercise, which is scheduled to be completed by May this year.
Separately, TA Securities, in a report on Wednesday, said it foresees limited earnings growth prospects for BAT due to the challenging operating atmosphere, with a projection of a 7.7% decline in sales volume from FY16 to FY18.
“Also, with the downside earnings risks ahead, dividend yield may be at risk. This would likely take away the valuation support and could render the stock less attractive than other high-yielding consumers’ stocks in the like of brewery companies,” it noted.
TA Securities has maintained a “sell” call on BAT with an unchanged target price of RM56.00. The stock was up 28 sen to RM55.32 yesterday.