Results

• Within expectations – 9MFY14 PATAMI of RM148.3m came in within expectations, accounting for 78.1% and 77.7% of ours’ and consensus’ full year forecasts respectively. We deemed this to be in-line as we continue to expect 4Q to be weak from lower consumption volume.

Highlights

Malaysia: Revenue grew by 3.8% yoy in 3QFY14 mainly on the back of successful consumer campaigns and stock loading in anticipation of potential excise duty hike during Budget 2015. Operating profit improved further with 27.5% growth mainly on the back of improved product and pricing mix as well as sound costs efficiencies measures.

Singapore: Operations in Singapore continued to gain momentum, recording revenue growth of 66.1% yoy for 3QFY14 as it recovered from the completion of the group’s stock rationalization program in 1QFY14 coupled with improved consumer sentiments. Operating profit jumped 103.4% from higher revenue and economies of scale.

YTD: For 9MFY14, revenue grew s lightly by 3.8% largely from the 21.6% jump in Singapore’s revenue as Malaysian operations declined by 0.9%. The demand for beer remained weak domestically while the recovery in Singapore came from the completion of stock rationalization program and the acquisition of MayBev in Apr 2014.

Despite the marginal revenue growth, operating profit managed to record an impressive 21.3% jump on the back of effective costs management programs in both Malaysia and Singapore. Pricing and product mixed also improved.

Risks

• Excise duty hike after absence of 9 years;
• Higher-than-expected raw material prices;
• Lower-than-expected TIV; and
• Continuous decline in market share.

Forecasts

• Despite results being in-line, we continue to remain cautious and conservative on the industry’s total volume for FY15-16. Hence, we cut our TIV growth to 1.5% (similar to GAB). As such, FY15-16 EPS is cut by 2.9% and 6.7% respectively.

Rating

HOLD

Positives

• 1) High dividend yield stock; 2) Duopoly industry; 3) Resilient earnings; and 4) Low capex requirements.

Negatives

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

Valuation

• Post-earnings revision, TP is reduced to RM12.51 (from RM13.77) based on DCF valuations.
• With potential upside now less than 10%, we downgrade our recommendation to HOLD.

Source: Hong Leong Investment Bank Research - 1 Dec 2014