Period   3Q13 / 9M13 

Actual vs. Expectations    The 3Q13 results came in within expectations with 9M13 net profit of RM184m making up 85% and 81% of our FY13 full-year estimates as well as that of the consensus. We consider this to be in line as 4Q13 is expected to be generally weaker due to seasonal factors.

Dividends  No dividend was declared, as expected.

Key Results Highlights   QoQ,  the net profit of RM61.2m dropped by 7.6% despite the better sales number (+3.0%) of RM442.5m, due to margin compression where its EBITDA margin came down by 1.9ppt from 22.5% to 20.6%.

YoY, the 3Q13 net profit improved significantly by 18.7% from RM51.5m on the back of 21.3% sale growth which was due to the Chinese New Year festival. 

YTD, the 9M13 net profit grew by 6.7% from RM172.6m to RM184.1m underpinned by the pretax margin improvement of 1.4ppt from 18.0% to 19.4%. This was due to the improved pricing in the malt liquor market and favourable product/channel mix.

Outlook    4Q13  result  is  likely  to  be  seasonally  softer  in  the absence of major festival celebrations.

Change to Forecasts   We have tweaked our FY13 and FY14 earnings estimates higher by 6% and 4%, respectively as we assumed a better margin moving forward as a result of lower operating costs. 

Rating    Downgrade to UNDERPERFORM

Valuation    Our DCF-base target price of RM18.20 raised by 6% from RM17.10 as we rolled forward our valuation to FY14. 

We are downgrading GAB to UNDERPERFORM from MARKET PERFORM given its rich valuation which implies a 27.2x PER to its FY13 earnings coupled with a less attractive dividend yield of 3.3%. 

Risks    Higher than expected excise duty hike, input cost and decline in its market share.

Source: Kenanga