Results

FY13 revenue of RM1.68bn came within expectations. However, net profit of RM217.6m came below expectations, but in line with consensus, accounting for 90.4% and 95% of HLIB and consensus full year earnings respectively.

Deviations

Higher-than-expected operating expenses.

Dividends

Declared final dividend of 48.5 sen/share, totaling to 68.5 sen/share for FY13. This represents a total payout of 95% or dividend yield of 3.8%.

Highlights

YTD: Group revenue improved 3.2% yoy, mainly driven by Tiger. Besides that, the group also saw positive growth in the Modern On-Trade channel, where beers are sold at higher prices compared to Traditional On-Trade and Off-Trade channel. Earnings saw a growth of 4.9% from favourable product/channel mix as well as optimized cost management, which were partially offset by the costs incurred for brand building and IT infrastructure.

The investment costs incurred during the quarter were largely for the repackaging of the new Heineken bottle which was launched last year. The group also implemented a new IT system in 1QFY13.

In FY13, GAB have fully repaid its short-term commercial papers (CP) amounting to RM200m, leaving the group with only RM150m medium-term notes. The MTN is expected to be repaid in two tranches (2014 and 2016).

Going forward, management guided that the malt liquor market (MLM) volume would grow moderately as the industry continues to be challenging. GAB will be looking into other areas to improve (apart from volume growth), with objectives to further grow and enhance its premium (Heineken & Guinness) and super premium (Kilkenny & Strongbow) brands presence.

Managing Director Hans Assaadi also has in place a strategy addressing the changing market climate where consumer profiles has changed to younger generations from urban areas (Gen-Ys).

Risks

1) Excise duty hike after absence of 8 years;

2) Higher-thanexpected raw material prices;

3) Lower-than-expected TIV; and

4) Continuous decline in market share.

Forecasts

FY14-15 net profit forecasts reduced by 7-8% to account for higher COGS and opex assumptions. As such, EPS is expected to grow moderately between 3-5% for FY14-15.

Rating

HOLD

Positives – 1) Relatively high dividend yield stock; 2) Duopoly industry; and 3) Resilient earnings and low capex requirements.

Negatives – 1) Highly regulated industry; and 2) Potential excise duty hike.

Valuation

Post-earnings revision, DCF-derived target price is reduced by 9% to RM16.70 from RM18.35 previously. Given that share price have fell almost 20% over the past 2 months and total potential return is within our house range of +/-10%, we keep our HOLD recommendation unchanged.

Source: Hong Leong Investment Bank Research - 23 Aug 2013