Period

4Q15/FY15

Actual vs. Expectations

FY15 net profit of RM214.2m (+8.1%) was within consensus’ expectation by hitting 99% of the estimates but slightly below ours by only matching 94.6% of our forecast. The negative deviation can be attributed to the higher-than-expected effective tax rate.

Dividends

As expected, final single tier dividend of 51.0 sen /share was declared, bringing FY15 DPS to 71.0 sen (vs FY14: 64.5 sen). The DPS represents 100.1% pay-out ratio, which was within our expectation.

Key Results Highlights

YTD, FY15 revenue increased by 8.6% to RM.7b thanks to 6.7% growth in volume. The healthy sales volume growth was achieved despite the challenging operating environment in FY15 thanks to continuous and effective enforcement against contraband beers by the authorities bearing fruits, resulting in the recovery of the legal Malt Liquor Market (MLM). Besides, higher efficiency expanded operating margin by 0.1 ppt which drove operating profit higher by 9.1% to RM295.4m. However, net profit growth was slower at 8.1% due to a higher effective tax rate of 26.7% (vs FY14:25.4%).

QoQ, 4Q15 revenue slid 3.7% to RM397.6m which we think is moderate considering the swing in consumer sentiments as well as spending in reaction to the GST implementation. However, PBT jumped by 24.5% to RM65.5m which the Group attributed to timing of promotional spending and better cost management. However, net profit of RM44.0m was only 11.6% higher due to a higher effective tax rate of 32.8% (vs 3Q15:25.0%).

Outlook

Result was encouraging as the Group’s initiatives and strategy in mitigating the impact of persistent weak consumer sentiment throughout the year played an important role in sustaining the earnings growth, through engagement with distributors, innovation in launching new products and commitment in brand building investments.

Management has spotted normalization of sales volume post-GST starting in July and is also confident that the momentum can be sustained with marketing campaigns and launchings of new products. These are essential as volume growth and cost efficiency will be vital for the earnings growth moving forward as GAB will be restricted from increasing prices before 4QCY16 due to the Anti-Profiteering Act.

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. We also believe the MLM industry is less vulnerable to the soft consumer sentiment with net profit growth of 8.3% and 9.7% forecasted in FY16E and FY17E, respectively.

Change to Forecasts

We factor in higher marketing expenses in FY6E as we believe more aggressive marketing campaigns will be carried out in order to stimulate demand, which resulted in 2.8% cut in FY16E net profit. We also take this opportunity to introduce our FY17E forecast, which implied a net profit growth of 9.7%.

Rating

Maintain OUTPERFORM

Valuation

Correspondingly with the earnings revision, our Target Price is nudged lower to RM15.36 (from RM15.80). TP is based on unchanged 20x PER FY16E, close to -0.5SD over 3-year mean.

Risks to Our Call

Higher-than-expected marketing expenses

Unexpected excise duty hike

Source: Kenanga Research - 17 Aug 2015