1Q17 net profit of RM49.0m (-4%) is within expectations due to anticipated seasonal weakness following forward buying during the Chinese New Year period. No dividend was declared, as expected. Despite slow growth estimates, group initiatives to improve operating margins are expected to drive future earnings growth. Maintain OUTPERFORM and TP of RM21.38.

1Q17 net earnings were within expectations. 1Q17 results of RM49.0m were within our/consensus expectations. Although making up of only 16%/17% of full year estimates, the Jan-Mar quarters are seasonally weak due to heavy forward buying in the pre-Chinese New Year period. No dividend was announced, as expected. Historically, the group does not declare dividends in the first financial quarters.

YoY, 1Q17 revenue of RM401.1m was lower than 1QCY16 by 13% arising from the earlier festive period in 2017. The weaker sales could also be attributed to softer consumer sentiment and spending in the current quarter. Operating profits declined by 8% from the lower sales but was supported by stronger operating margins to 16.3% (+0.8 pts) thanks to the group’s efforts to streamline operational process. With lower effective taxes (24.1% from 27.6%), the group registered 1Q17 NP at RM49.0m (-4%).

QoQ, 1Q17 top-line dipped by c.31% from RM577.5m in 4QCY16 from the high forward spending in lieu of the Chinese New Year festivities. Poorer product mixes, lack of seasonal sales promotions could have led to the decline in operating profit and margin by 47% and 5.0 pts, respectively. With a higher effective tax in the current quarter, net earnings were recorded much weaker by 53%.

Still pulling their weight. The group continues to implement initiatives towards improving cost and operational processes to keep margins healthy. With new non-beer and stout products entering the market, we are hopeful that it will further enhance the group’s leading position in the market. We also believe that the introduction of new products could mitigate the impact of weak consumer sentiment as it exposes the group to a wider audience for a larger volume outreach.

We tweak our FY17E/FY18E estimates by -4.5%/-0.2% as we incorporate the audited financial statements and make minor adjustments to our estimated cost exposures (i.e. excise duties, marketing, etc).

Maintain OUTPERFORM and Target Price of RM21.38. This is based on our unchanged FY18E EPS of 112.4 sen and a PER of 19.0x. While sales growth appears to be at a slow pace given unfavourable consumer sentiment and adverse macroeconomic conditions, the margins expansion from the new efficiencies are likely to make up for this and drive future earnings. Assuming a dividend pay-out of c.90% (slightly conservative from historical pay-out trends), dividend yields from the stock could amount to 5.2%-5.4%.

Source: Kenanga Research - 13 Apr 2017