THE BUZZ
After almost six years at the helm of GAB, Charles Ireland will pass on the Managing
Director baton into the hands of Hans Essaadi, effective 1 March 2013.
OUR TAKE
Passing the baton. Ireland's handover to Essaadi will occur at the end of the former's term as GAB MD in two months' time. The company is 51%-owned by GAPL Ltd, a joint venture between Diageo and Asia Pacific Breweries (which is ultimately held by Heineken). Hence, GAB practices a rotational system, whereby representatives from this two major shareholders, Diageo and Heineken, will take turns to occupy its top post. Ireland, who had been with Diageo since 1997, replaced Theo de Rond from Heineken as GAB chief in 2007.
Charles' legacy. Under Ireland's stewardship, the company's malt liquor market (MLM) volume market share grew from 55% in FY07 to 60% in FY12. GAB's volumes increased by a CAGR of 8.3% during his tenure, outpacing the industry's 6.3% average annual growth. Consequently, revenue and earnings expanded every year at an 8.7% and 13.0% average growth rate respectively. We continue to view GAB as having a more superior operational efficiency compared to its key rival, with the recent RM35m IT infrastructure investment giving it even greater transparency in its productivity and profitability.
Hans' chapter. Essaadi has been with Heineken for over 20 years, with experience in Central and Eastern Europe, Central America and the Middle East. His latest posting was as General Manager of Sirocco FZCO in Dubai since 2008, a post he held till December 2012. Sirocco, a joint venture between Heineken and the Emirates Group, does not have a production facility but focuses on selling and marketing Heineken and other premium brands in the Gulf region. The Dutch national has also worked at Brau Union in Austria, which has eight breweries across the country, in 2005-2008. Essaadi joins GAB at a time when key rival Carlsberg has successfully transformed itself from being traditionally viewed as a one-brand company into one with diversified offerings within the mid and high price ranges. With his experience in business development, sales and brand marketing, Essaadi's appointment may be helpful in further beefing up GAB's currently dominant position in the premium segment.
Maintain BUY. We believe the industry will continue to enjoy improving product mix and steady volume growth in 2013 in the absence of a beer excise hike during the 2013 Budget announcement. We continue to like GAB for its stellar corporate governance, strong brand portfolio across all price points and its leading market share. Maintain BUY with a FV of RM17.47, based on our FCFF model (WACC: 7.1%, terminal growth: 2.2%).