Results

• 9MFY15’s revenue of RM1351.43m and net profit of RM170.2m came in above expectations, accounting for 82.9% and 82.5% of our estimates, whilst clocking in 79.7% and 77.4% of consensus estimates

• 9M usually accounts for ~75-78% of full year forecasts, however we expect beer consumption volume for 4QFY15 to be lower due to dampened consumer sentiment resulting from the GST implementation, as such we deem this to be inline.

Dividends

• None.

Highlights

• 3Q15 yoy revenue growth of 17.4% was largely driven by the later timing of Chinese New Year festivities in the calendar year, pricing, favorable brand mix and increased purchases during the festive season. Furthermore, new product launches in FY14 such as Kirin Ichiban, Smirnoff Ice and three new Strongbow flavors also contributed to the volume increase. Management also mentioned that there was some pre-GST stocking up in the off-trade channel.

• 3Q15 opex grew in tandem with topline, due to higher commercial spending coinciding with the promotional activities for CNY, consequently net profit grew by 11% yoy.

• Management also attributed the performance to the measures taken by the Royal Malaysian customs and other enforcement agencies against contraband beers which remains a major threat to the brewery players, as they are priced significantly lower than legal alcoholic beverages.

• We believe that the group will continue to focus on growing momentum through commercial initiatives and innovations. Nonetheless, we foresee volume to be weak in 4QFY15 arising from the dampened consumer sentiment, which would result in consumer turning more selective in their spending patterns considering that beer is considered a nondiscretionary item.

• We continue to remain cautious on the overall sector’s TIV as we believe sales volume in 4QFY15 to weaken due to the implementation of GST.

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) Potential excise 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 - 14 May 2015