Period

1Q16 Actual vs. Expectatio ns

1Q16 net profit of RM63.1m (+15.6%) is within expectations, matching 27.2% and 27.9% of our in-house forecast and streets’ estimates, respectively.

Dividends

None, as expected.

Key Results Highlights

YoY, 1Q16 revenue grew 3.0% to RM405.0m due to higher sales recorded which we think can be attributed to the enforcement efforts by the authorities in tackling the contrabands beers. Operating profit managed to surge 14.3% to RM84.2m as the operating margin expanded by 2.1ppt to 20.8% on the back of improved cost efficiency, enhanced brand visibility thanks to the marketing and promotional activities. As a result, net profit jumped 15.6% to RM63.1m

QoQ, 1Q16 revenue increased by 1.9% to RM405.0m due to seasonality as well as the recovery in spending following the GST implementation in 4Q15. Swing in recognition timing of marketing expenses, more favourable product mix and better cost management boosted operating profit by 27.9% to RM84.2m. Meanwhile, the normalization of an effective tax rate (from 32.8% to 25.0%) lifted net profit by 43.3% to RM63.1m.

Outlook

The 1Q16 results were encouraging as the Group’s initiatives and strategy in mitigating the impact of persistently weak consumer sentiment 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 remains optimistic on the earnings growth moving forward with all the measures and strategies in place. Meanwhile, the Group has also recently launched a series of new innovative products, including Tiger White, Strongbow Red Berries, Smirnoff Ice Black and Heineken Spectre in order to meet the changing consumer preferences.

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 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 9.6% forecasted in FY16E and FY17E, respectively.

Change to Forecasts

No changes to our earnings forecasts.

Rating

Maintain OUTPERFORM

Valuation

We maintain our Target Price 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 - 25 Nov 2015