Period  1Q14

Actual vs. Expectations 1Q14 net profit of RM52.3m came well within expectations, making up 27% of consensus and 26% of our full-year estimates.

Dividends  None, as expected.

Key Results Highlights  QoQ, revenue grew by 15% to RM455.9 underpinned by the peak of Chinese New Year festive season. However, higher operating expenses (+21%) from the Chinese New Year festive campaign weighed down pre-tax profits, while an increase in taxation expense (+35%) to RM15.8m dragged down net profit further causing it to decline by 18% to RM52.3m.

 YoY, topline declined by 5% possibly due to the timing of Chinese New Year (CNY) which was earlier this year compared to last year implying shorter pre-CNY sales for the period. However, profits managed to increase by 3.6% to

RM52.3m from improved Malaysian operations on: (i) effective consumer marketing activities and (ii) cost efficiency programs which improved prce and product mix. This was despite a decline in its Singaporean operating profit, which was affected by: (i) the stock rationalization program, which ended in 1Q14 and (ii) lower consumption caused by the steep 25% rise in liquor excise duty in Feb-14. This allowed for a 1.0ppt net margin expansion from 10.7% in 1Q13 to 11.7% in 1Q14.

Outlook  An expanding portfolio of brands, particularly the premium and super-premium beers are expected to underpin revenue growth despite the challenging operating environment.

 Despite the completion of the stock rationalisation program in Singapore and the effective roll-out of efficiency programs, there may some short-term weakness from consumer demand due to the 25% rise in liquor excise duty implemented in Feb-14.

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

Rating Maintain MARKET PERFORM

Valuation  We maintain our DCF-based target price of RM13.07 (WACC: 8.7%, terminal growth: 1.5%). Share price appears to have bottomed out while current dividend yields are above its 2-year historical average of 4.6%. However, going forward we believe the stock lacks of catalyst, coupled with a challenging consumer market environment.

Risks to Our Call

 A higher-than-expected excise duty hike, input cost and decline in its market share.

Source: Kenanga