News

GAB announced that it has received bills of demand from Royal Malaysia Customs (RMC) on 3 September 2015 demanding payment of additional excise duties and sales tax totalling RM56.3m.

The demands include: (i) RM34.2m claimed under excise duties (for the period of 28 August 2012 to 31 October 2013.), and (ii) RM22.2m claimed under sales tax (for the period of 1 July 2012 to 31 October 2013).

GAB’s position is that all excise duties and sales tax for those periods had been paid based on valuations previously assessed and approved by RMC. Thus, GAB does not admit to the liability on the demands and will take appropriate measures to address the matter.

Comments

We were surprised by the tax claims by RMC, which were issued nearly two years after the affected period. We view the claim negatively as it might cause an overhang on the share price by denting sentiment. To quantify the financial impact, the amount demanded translates into 24.3% of FY16E net profit or 22.1% that of FY17E.

This is the second tax claim slapped on a local brewery company a year after CARLSBG. To recap, CARLSBG announced that it received bills of demand from RMC amounting to RM56.4m (for the period of 1 July 2011 to 14 January 2014).

No further detailed information was disclosed by the Group, but we will monitor the development closely. We also think that it will be a long-drawn case, similarly to the CARLSBG’s case, which is still unresolved after one year.

Outlook

While the claims might cause a temporary dent on sentiment, we maintain our positive stance on the company as its strong fundamentals remain intact unaffected by the tax claims.

We continue to like GAB for its market-leading position in the local Malt Liquor Market (MLM), while the strategy of focusing on premium segment by embarking on aggressive marketing activities will help 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 9.6% forecasted for FY16E and FY17E, respectively.

Forecast

No changes to our earnings forecasts.

Rating

Maintain OUTPERFORM

Valuation

Maintain our TP of RM15.36, based on unchanged 20x PER FY16E.

Risks to Our Call

Higher-than-expected marketing expenses

Unexpected excise duty hike

Source: Kenanga Research - 8 Sep 2015