Period  3Q14/9M14

Actual vs. Expectations 9M14 net profit of RM151.3m came in within expectations, making up 71% of both consensus’ full-year estimates and ours.

Dividends  None, as expected.

Key Results Highlights YoY, revenue declined by 15.8% to RM372.5m due to lower sales arising mainly from: (i) the timing of Chinese New Year (CNY) which was earlier this year compared to last year implying shorter pre-CNY sales for the period, (ii) a softer consumer market due to inflationary pressures, and (iii) negative tourist sentiment. Coupled with cost pressures, which caused margins to compress by 4.3ppt, net profit declined by 41.9% to RM35.6m.

 QoQ, revenue declined by 25.4% to RM372.6m mainly due to similar reasons mentioned above and also the quarter under review was coming off from the higher base in 2Q14 where several major commercial activities were rolled out in conjunction with festivities during the October-December months. This resulted in bottomline being dragged down further by 46.2% to RM35.6m on the back of lower interest income (-46.3%) and higher interest expense (+18.6%).

 YTD, 9M14 revenue declined by 5.3% to 1197.7m attributable to the weaker market sentiment, coupled with planned reduction in distributor stocks. This compressed EBITDA margins by 2.4ppt to 19.2%. Unsurprisingly, this caused net profit to decline by 17.9% to RM151.3m.

Outlook  GAB's outlook remains challenging due to cautious spending by consumers, as well as increasing competition from contraband beers, which are widely available in the market.

 Implementation of GST in Apr-15 may further dampen consumer demand.

Change to Forecasts    We make no changes to FY14E and FY15E estimates.

Rating Maintain UNDERPERFORM

Valuation  Our DCF-driven TP of RM14.24 implies a FY15 PER of 18.6x. We believe prospects are less compelling at this juncture while current dividend yields are below its 5-year historical average of 5.7%.

Risks to Our Call     Better-than-expected sales.

 Lower-than-expected operating costs.

Source: Kenanga