Results

• 1HFY15’s revenue of RM914.09m came in within expectations but net profit of RM130.9m came in slightly above, accounting for 63.4% and 64.1% of ours and consensus estimates, respectively.

• 1H usually accounts for 55-58% of full year forecasts and we continue to expect beer consumption volume for 2HFY15 to be weak from lower spending power as well as potential higher ASP due to GST implementation in April 2015.

Deviations

• Lower-than-expected operating expenses.

Dividends

• Declared single-tier interim dividend of 20 sen/share, representing 46.2% and 1.64% dividend payout and dividend yield, respective. Do note that GAB usually declared lumpy dividends in 4Q.

Highlights

• 1HFY15’s revenue growth of 10.8% was largely contributed by the strong performance in 2Q from favourable pricing and increased purchases during the year-end festive season. New product launches also contributed to the volume increase.

• Net profit on the other hand experienced a larger quantum of growth at 13.1% thanks to cost efficiencies, optimization and improvement in productivity across all aspects of the group’s operations. With a later timing of Chinese New Year (CNY), GAB also incurred lower commercial spending.

• Despite the lower commercial spending in 1HFY15, we do not expect the pattern to continue in 2HFY15 given the traditional higher promotional activities for CNY. In addition, we also understand that the group plans to organize several more activities in March and April (pre- and post-GST). Hence, we see higher commercial spending in 2HFY15.

• Although the group highlighted that there could be preloading of inventory by retailers before GST, we believe the quantum would not be significant in order to maintain the freshness (quality) of the beer.

• Post-GST, we foresee volume to be weak in 4QFY15 due to erosion in spending power, which would result in consumer turning more selective in their spending patterns.

Risks

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

Forecasts

• Unchanged.

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) Potentialexcise duty hike.

Valuation

• No changes to our HOLD recommendation on GAB and target price of RM13.25 based on DCF valuation.

Source: Hong Leong Investment Bank Research - 6 Feb 2015