Period

3Q15/9M15

Actual vs. Expectations

9M15 net profit of RM170.2m (+12.5%) accounted for 72.2% and 77.8% of our in-house and consensus’ forecasts, respectively. The result is deemed below our expectation as we are anticipating a weaker 4Q15 due to seasonality. Higher-than-expected marketing expenses were the main contributory factor for the negative deviation.

Dividends

None, as expected. Dividends are normally declared during 2Qs and 4Qs. The Group declared 20.0 sen/share dividend in 2Q15.

Key Results Highlights

YTD, 9M15 revenue surged 12.8% to RM1.4b driven by sales volume growth of 8.2%. The Group attributed the healthy volume growth to a mixed function of higher legal volume, the positive result of successful marketing activities and the launching of new products. Meanwhile, 9M15 net profit grew 12.5% to RM170.2m, in line with the revenue growth while profit margins stayed stable.

YoY, 3Q15 revenue jumped by 17.4% with sales volume growth of 12.6% due to the timing of Chinese New Year (CNY) which fell later in mid-February as compared to end-January in CY14. The stronger sales were also due to the effective deployment of successful strategy to stimulate sales. As a result, net profit increase by 11% to RM39.5m driven by higher revenue but net margin narrowed by 0.5ppts due to the higher marketing expenses.

QoQ, 3Q15 revenue fell 16% to RM437.3m due to seasonality as 2Q is normally strongest thanks to year-end holidays and festivities. The decline can also be attributed to the negative consumer sentiment on the back of the slump in oil prices and air tragedies, which toned down the celebration of CNY during the quarter. Net profit slumped at a greater quantum of 48.2% to RM39.5m as the Group incurred higher marketing expenses in conjunction with the CNY as well as to boost the subdued consumer sentiment.

Outlook

We are comforted by the healthy volume growth (8.2% YTD and 12.6% YoY) which we believed is achieved largely due to the continuous illegal clampdown activities and the successful sales campaigns. The Group continued to deliver encouraging numbers with 3Q15 being the third consecutive quarter of double-digit growth in net profit. We think that the feat was impressive considering the persistent weak consumer sentiment throughout the year.

We continue to like GAB for its market leading position in the local Malt Liquor Market, while the strategy of focusing on premium segment by embarking on aggressive marketing activities will help to sustain earnings growth. Nonetheless, we expect the near-term earnings growth to be underpinned by the price increase (singledigit) back in end-CY2014.

Change to Forecasts

We impute higher marketing expenses to both FY15E and FY16E earnings as we had underestimated the costs initially. As a result, net profits are revised down by 1.1%-3.9%.

Rating

Maintain OUTPERFORM

Valuation

We rolled over our valuation to FY16E, ascribing unchanged 20.0x PER to derive a higher Target Price of RM15.80 (from: RM15.60). The valuation implied -0.5 SD over 3-year mean. Potential upside is narrowed to 6.8% after a strong share price performance (+21.3%) since our upgrade in 2Q15, but with a dividend yield of 5.1%, the stock offers >10% of potential total return. Hence, Outperform call is maintained.

Risks to Our Call

Higher-than-expected marketing expenses

Unexpected excise duty hike

Source: Kenanga Research - 14 May 2015