Period

3Q16/9M16

Actual vs. Expectations

9M16 net profit of RM204.8m (+20.3%) beat expectations for the second consecutive quarters by matching 81.4% and 84.9% of our forecast and consensus estimates, respectively. The positive deviation can be attributed to both higher-than-expected sales growth and operating efficiency.

Dividends

None as expected.

Key Results Highlights

YoY, 9M16 revenue grew marginally by 2.8% to RM1.4b but the actual growth should be higher as 9M15 revenue included a 10% sales tax which was subsequently replaced by GST starting 4Q15. 9M16 PBT of RM272.3m was at a 20.3% growth from RM226.9m in 9M15, driven by improved cost efficiency in commercial spending. As a result, 9M16 net profit surged 20.3% to RM204.8m.

QoQ, 3Q16 revenue dipped 12.5% to RM458.9m due to seasonality as the strong sales driven by the Chinese New Year festivities were recorded in 2Q16. Meanwhile, the swing in marketing expenses between the quarters shrank PBT by 40.5% to RM70.2m. Higher effective tax rate of 27.6% (vs 2Q16: 23.0%) dragged net profit down by 44.0% to RM50.8m.

Outlook

We are impressed by the stellar results as this is the seventh quarter in a row which the Group has recorded YoY growth, with six quarters registering double-digit gains. Furthermore, the performance was encouraging considering it was achieved on the back of weak consumer sentiment. Management is confident that the growth can be sustained through continuous investment in brand building, further improvement in operating efficiency and the favourable switch in product mix toward the premium brands.

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.

Change to Forecasts

We upgrade our earnings forecast after imputing higher sales growth and margin assumptions. As a result, FY16E and FY17E net profits were raised by 3.1% and 3.3%, respectively.

Rating

Maintain OUTPERFORM

Valuation

Our Target Price is raised to RM16.90 (from RM16.36) correspondingly with the earnings upgrade. TP is based on unchanged FY17E PER of 18x, which is slightly below its 5-year mean.

Risks to Our Call

Higher-than-expected marketing expenses.

Unexpected excise duty hike.

Source: Kenanga Research - 13 Apr 2016