18M16 net profit of RM427.3m (+16%) beat our expectation by 9%, due to better margins from improvements in group operating processes. A 60.0 sen dividend was declared, also beating our expectation. While there may be uncertainty in pricing strategies, we opine that the expanded margins and larger product portfolio can secure the group?s market leading position as well as drive earnings. Maintain OUTPERFORM with a higher TP of RM19.65. FY16 (18M16) were above expectations. 18M16 results of RM427.3m beat our expectation, making up of 109% of our forecast. A 60.0 sen dividend was declared, for a total FY16 dividend of 145.0 sen which beat our estimated 123.0 sen.

YoY, 18M16 revenue of RM2.8b improved by c.5% thanks to the healthy volume growth of its premium products as well as stronger performance from its Off-Trade segment. In terms of operating profit, the group registered a c.11% growth to RM551.1m on the back of improvements made to cost efficiency, overall operational and value chain along with procurement processes, expanding operating margins by 1.0pts to 19.6%. With lower effective taxes (22.2% from 25.6%), the group ultimately registered 18M16 NP of RM427.3m.

QoQ, 6Q16 surged by c.50% to RM557.5m against 5Q16, stemmed from higher forward spending in lieu of Chinese New Year festivities in January alongside better product mix. The low base from 5Q16 sales could also be attributed by the seasonal lack of festivities during that period. Operating profits of RM123.1m (+c.64% QoQ) outpaced the previous quarter, in line with the increase in sales along with the implementation of further cost and operational improvements in 6Q16. With lower effective taxes (14.5% from 24.0%), the quarter?s NP increased by 84% to RM104.7m.

Bright outlook ahead, as the group?s initiatives towards improving cost and operational processes have been rewarded by what we believe to be sustainable expanded margins. We are also optimistic with the group?s introduction of new products to cater to the non-beer and stout consumer audiences as it presents the potential to further enforce and expand the group?s leading position in the market. On the new Price Control and Anti-Profiteering Regulation 2016, the group has yet to implement price increase since its implementation pending further discussions with the ministry. However, given the regulation?s aims at limiting price controls on the gross profit margin level, we believe the gains from the group?s recent continuous improvement efforts will not be impeded due to them only affecting operating profits. Further, we believe if the group decides to exercise a small degree of price increase, it may not be detrimental due to its market-leading position and sticky demand for its products.

We upgrade our earnings for FY17E by c.14% as we tweak our sales estimates to incorporate a larger product portfolio and wider margins to be enjoyed. In addition, we introduce our FY18E numbers.

Maintain OUTPERFORM with higher Target Price of RM19.65 (from RM18.48, previously). This is based on FY17E revised EPS of 103.4 sen and a lower PER of 19.0x (from 19.6x) as we relook into the stock?s 5-year mean PER. While sales growth continues at a slow pace given unfavourable consumer sentiments and adverse macroeconomic conditions, the margins expansion from the new efficiencies are likely to make up for this and drive future earnings. Incorporating a resounding dividend pay-out of c.90%, dividend yields from the stock could amount to 6.0%-6.3%.

Source: Kenanga Research - 16 Feb 2017