Result

• Within Expectations - FY15 PATAMI of RM 215.0m came in within expectations, accounting for 107% of ours and consensus’s full year estimates , respectively.

• We deem this to be inline as other operating income was significantly higher, growing by 289% to RM11.1m from RM3.8m in FY14. If we normalize this figure than ours and consensus estimates come in at 103%.

Deviations

• Lower revenue contributions from Malaysia and disposal of LHFB in May, which was partially, offset by greater contributions from Singapore their operations.

Dividends

• Declared final and special dividend of 67 sen/share (4QFY14: 66 sen/share), totaling FY15 dividends to 72 sen/share. This represents a dividend payout and yield of 102% and 5.95% respectively.

Highlights

• Yoy: Revenues experienced a growth of 1.5% attributed to stronger performance from Singapore and effective cost management across the group. Subsequently PATAMI grew 2.2% yoy.

• Malaysian operations continue to drag earnings, recording a decline of 18.9% yoy (FY14:RM203.9m vs. FY15:RM165.4m). This is primarily attributed to the revenue impact from the disposal of LHFB, the lower sales domestically, impairment loss from the divestment as well as higher raw materials costs due to the weaker MYR.

• Operations in Singapore continue with its strong momentum, growing 31.8% yoy with total revenue of RM545.4m (FY14:RM413.9m). This is on the back of higher sales volume, improved price/mix and effective cost management as well as additional profit contributions from the Maybev acquisition and the stronger SGD vs. MYR during CY2015.

• We expect that domestic market conditions in 2016 to continue to remain challenging. Domestic consumer sentiments are expected remain depressed before a gradual recovery. Furthermore, with domestic volumes waning as reflected in the drag in Malaysian earnings, the cushioning from the Singapore operations could thin once the MYR starts to normalize throughout 2016. To note our house expects Ringgit to normalize to MYR4.00/USD by years end.

Risks

• Risks to this stock arise from two venues: 1) overhang of the customs bill to the amount of RM56m for duties and penalties in arrears. 2) Absence of an excise duty hike after a 10 year hiatus can no longer be discounted lightly given the current pressures on the government’s revenues.

Forecasts

• Unchanged.

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

• Maintain our BUY call and increase our TP to RM13.60 from RM13.05 as we roll forward our DCF valuation (WACC: 8.24%; TG: 2.5%).

Source: Hong Leong Investment Bank Research - 29 Feb 2016