Period  4Q14/FY14

Actual vs. Expectations  FY14 net profit of RM211.6m (+15%) beat our full-year expectation by 9.8% and the street’s estimates by 8.9%. The positive deviation can be attributed to higher-thanexpected operating margin due to better efficiency.

Dividends  Total DPS (including final and special interim dividend) of 66.0 sen was declared, bringing FY14 DPS to 71.0 sen (vs FY13: 61/0 sen), which was above our expectation due to the higher pay-out ratio of 103% as opposed to the expected100%. DPS translates into a yield of 5.5%.

Key Results Highlights  YoY, FY14 revenue rose 5.1% to RM1.6b, driven by strong performance in Singapore (+23.2%) but local sales was flattish. Meanwhile, group operating profit managed to grow by 12.6% to RM264.5m, thanks to the higher operating margin recorded (+1.5ppt) in Malaysian operations on the back of effective cost management programmes as well as better product mix, which resulted in higher operating profit of RM203.9m, up 10.6%.

 QoQ, 4Q14 revenue inched up marginally by 3.5% to RM423.8m, supported by the higher sales in Malaysia. Net profit of RM62.9m was 11.8% higher mainly due to the lower effective tax rate of 16.7% (via-a-vis 21.9% in 3Q14).

Outlook  Moving forward, we expect the better product mix with more gravity on the premium brands including Somersby Apple Cider, Somersby Pear Ciders and Kronenbourg to drive the earnings growth as sales volume growth is expected to be subdued due to the soft consumer sentiment.

 Meanwhile, we also laud the Group’s effective cost management programmes, which had expanded the overall profit margins by improving its efficiency level, which we think is essential in the tough operating environment in Malaysia due to competition from contrabands as well as weak consumer sentiment.

 However, we remain wary of the outlook of the Group despite the commendable earnings growth in view of the implementation of GST, as well as ongoing lawsuit in which the bill of demand amounting to RM56.4m (26.7% of FY14 net profit) is expected to have potential significant financial impact to the Group.

Change to Forecasts  We upgrade FY15E earnings by factoring in the product mix trend into our forecasts, which resulted in higher operating margin of 17.1% (from 15.8%) and thus higher net profit of RM220.4m (+8.4%). We also roll out our set of FY16E that imply net profit growth of 8.3%.

Rating Maintain MARKET PERFORM with higher Target Price of RM13.23 (from RM12.21).

 Rating was maintained at MP despite the higher TP offering 8.5% potential return (2.9% capital gain, 5.6% dividend yield), as we expect share overhang with the ongoing concern on the tax claims lawsuit.

Valuation  Correspondingly with the earnings upgrade, our TP is lifted to RM13.23 (from RM12.21). We peg our TP against unchanged 18.5x PER FY15E, which is on par with -0.5SD of 3-year mean.

Risks  Unfavourable outcome of tax claims lawsuit.

 Sector risk: Higher-than-expected contrabands volume. 

Source: Kenanga