Results

1HFY14 net profit of RM49.6m came in within expectations, accounting for 55.8% and 53.0% of HLIB’s and consensus estimates respectively. We consider this in-line as 2Q is usually seasonally higher that other quarters and 1H usually accounts for ~55%-58% of full year earnings.

Deviations

Largely in-line

Dividends

Declared interim dividend of 20 sen (1HFY13: 20 sen), representing payout of 52.2% and yield of 1.3%. GAB usually declares a lumpy dividend in 4Q.

Ex- and entitlement date is set to be on 27 March 2014 and 31 March 2014, respectively.

Highlights

Qoq: Revenue was boosted by 53% on the back of major commercial activities carried out in conjunction with festive celebrations during the quarter. Earnings however experienced a smaller growth from higher operating expenses incurred as mentioned earlier.

Yoy: Revenue grew 16% mainly driven by pre-budget speculation as well as the early timing of Chinese New Year. Earnings were impacted with a marginal decline due to increased cost of investment in brand equity building activities.

YTD: Planned reduction of distributor stocks in 1QFY14 contributed to the marginal growth in revenue of 0.4%. Bottomline, however, declined by 6% on the back of higher commercial spend and marketing activities.

GAB expects the beer industry to continue to be challenging due to lackluster domestic consumption. The group’s operations would also be impacted from unfair competition from contraband beers which are increasingly available in the market.

Going forward, we remain conservative and skeptical above volume growth in the brewery sector as we believe that the industry is saturated, coupled with several other external factors such as rising fuel costs, inflation as well as potential exposure to excise duty hike in the near future. However, earnings should be sustainable at current levels.

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

Unchanged, pending further information from analyst briefing later today.

Rating

BUY

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

We are maintaining our TP of RM17.05 based on DCF valuations. However, we are upgrading our recommendation from HOLD to BUY given that share price has retraced more than 30% since its high in mid-CY13 and current level present an opportunity to accumulate.

Source: Hong Leong Investment Bank Research - 24 Feb 2014