Period  4Q14/FY14

Actual vs. Expectations GAB’s FY14 net profit (NP) of RM198.2m (-8.9%) came within expectation, accounting for 96.4% and 99.0% of our forecast and street’s estimate, respectively.

Dividends  Final single tier dividend of 44.5 sen/share was declared, lifting full year DPS to 64.5 sen/share in FY14 or payout ratio of 98% of its NP, translating into a dividend yield of 4.9%. The dividend is above our expectation of 61.6 sen/share due to the higher-thanexpected payout ratio.

Key Results Highlights

 QoQ, higher sales (10.8%) was registered as new products were launched namely Kirin Ichiban and Smirnoff Ice. Net margin expanded by 1.9 ppt to 11.4% in 4Q14 as lower costs were incurred during the quarter. These factors lifted 4Q14 NP to RM46.9m, higher by 32% vis-à-vis 3Q14 NP of RM35.6m.

 YoY, strong performance was recorded as NP surged 40.3% to RM46.9m from RM33.5m despite a flattish revenue growth, mainly attributed to the lower commercial spend as well as better cost management.

 YTD, FY14 NP declined 8.9% to RM198.2m from RM217.6m on the back of lower sales (-3.9%). The Group quoted: (i) soft domestic consumption, (ii) competition from contraband beers, and (iii) higher excise duty, as the culprits behind the decline.

Outlook  We remain cautious on GAB’s outlook moving forward as the decline in sales suggested that the Group is facing further challenges on the back of tightened consumer spending, coupled with increased competition from contraband beers that are widely available in the market. Meanwhile, the imminent implementation of GST in April 2015 could further drag down the overall demand for beers.

Change to Forecasts We take this opportunity to introduce our FY16E earnings forecast, which represents turnover growth of 1.9% and NP growth of 3.7% from FY15. We project malt liquor market (MLM) volume growth of 1.5%, up from the 1% being imputed in the FY15 forecast as we expect the sentiment post-GST to recover gradually in FY16.

Rating Maintain UNDERPERFORM.

Valuation  Our Target Price of RM12.93 is pegged to 19x FY15E PER, implying 0.5SD below its 3-year mean. We reckon that our valuation is fair in view of the marginal earnings growth potential moving forward; on cautious industry outlook and the diminishing dividend yield of <5%.

Risks to Our Call Better-than-expected sales.

 Lower-than-expected operating costs.

Source: Kenanga