Period  1Q15

Actual vs. Expectations 1Q15 net profit of RM54.6m (+10%) is deemed to be in line with expectations, accounting for 26.7% and 26.9% of our in-house and the street, fullyear forecast, respectively.

Dividends  No dividend was declared, as expected. Dividends are normally declared in second and fourth quarters.

Key Results Highlights YoY, revenue recorded strong growth of 20.7% thanks to the higher sales volume and improved product mix, as well as the efforts of the authorities in tackling the contrabands beers. However, operating profit growth was capped at 10.3% after the operating margin narrowed by 1.6ppt with the main culprit being the upliftment in excise duty valuation effective from Nov 2013, which cost GAB an extra RM18m in terms of excise duty payment in FY14.

 QoQ, revenue declined by 4.8% due to the changes in seasonal demand. However, operating profit managed to grow by 11.9% to RMRM73.7m, on the back of lower operating expenses (-8.1%) due to lower commercial spending as well as improved efficiency. However, we expect the commercial spending to normalize in coming quarters in view of the events and festivities toward the year end. Thus, we are keeping our operating margin of 16.5% unchanged vis-a-vis 18.7% in 1Q15.

Outlook  We maintain our negative stance on the company despite the commendable YoY revenue growth as it came from a lower base effect with 1Q14 revenue being lowered by the planned reduction in distributor stocks. Meanwhile, the sales volume did not seem to pick up on a quarterly basis, suggesting that the lacklustre market condition has yet to recover. Overall, earnings growth remained unexciting at 3.3% in FY15 and 3.9% in

FY16 as we expect the persistent soft consumer sentiment to limit the growth of the overall Malt Liquor Market while more expenses are foreseen to be incurred to stimulate the market.

Change to Forecasts We made housekeeping changes to our forecast after updating the FY14E figures. FY15-16E earnings forecasts are little changed at <1%.

Rating Maintain UNDERPERFORM

Valuation  Target Price was revised to RM12.88 (from RM12.93) correspondingly with the earnings adjustment. Our valuation is unchanged, based on 19x PER FY15F, which implied -0.5SD over its 3-year mean.

Risks to Our Call Better-than-expected efforts to tackle contrabands.

 Better-than-expected market sentiments.

Source: Kenanga