3M17 core net profit of RM67.4m (+7%) was broadly within expectations. No dividend was declared, as expected. Going forward, while the Sri Lanka operations may continue to suppress net earnings potential, growth will be supported by a strong product portfolio and exports. Maintain MARKET PERFORM with an unchanged TP of RM14.84.

3M17 was within expectations. 3M17 core net profit of RM67.4m was broadly within expectations, making up of 29% of both house and consensus forecasts. No dividends were declared as expected as the group typically does not declare dividends during its first financial quarter.

YoY, 3M17 revenue of RM502.6m grew by 10% on the back of continuing sales momentum in both Malaysia and Singapore markets mainly due to the Chinese New Year celebration. Favourable reception of more premium offerings further supplemented sales growth, which also boosted EBIT margins to 18.9% (+1.2 pts) for a EBIT of RM95.2m (+18%). Meanwhile, PBT registered at RM88.0m with a lower growth of 13% due to greater losses shared from Lion Brewery (Ceylon) PLC as impairment losses were incurred on one of its brand portfolio. Along with higher group level tax provisions in 3M17, the group recorded a core net profit of RM67.4m (+7%).

QoQ, 1Q17 top-line expansion of 16% was mainly driven by stronger sales in Malaysia, arising from enduring Chinese New Year sales. While EBIT grew by 11%, a lower EBIT margin at 18.9% (-0.8 pts) was recorded which we believe is due to domination of less premium products during the festive period. PBT also recorded a lower growth at 8% due to larger losses incurred from associates during the current quarter. However, as a result of higher taxes incurred in 4Q16, 1Q17 registered a greater core earnings growth of 43%.

Bigger markets from bigger portfolios. The Sri Lanka operations may continue to be a thorn on the group’s side from the persistent effects of the 2016 floods. Nonetheless, we believe the group is still capable of improving its business prospects with solid marketing efforts in addition to the introduction of new products to generate market interest in both the on-trade and off-trade segments. In addition, the progressive growth in the Singapore market may indicate more concentrated effort by the group to expand its share in that market while also benefiting from better currency gains.

We make no changes to our FY17E/FY18E earnings estimates. Maintain MARKET PERFORM with an unchanged Target Price of RM14.84. Our target price is based on an unchanged FY18E PER of 17.6x (in line with the stock’s 3-year mean PER) on an EPS of 84.3 sen. At the current price, the stock could potentially offer a dividend yield of 5.1% in FY18

Source: Kenanga Research - 18 May 2017