9M17 PATAMI of RM171.2m (+8%) is below expectations following weaker earnings from the Singaporean market. No dividend was declared, as expected. We believe the growing ‘premiumisation’ of the domestic portfolio would mitigate slowing contributions from abroad. Maintain MARKET PERFORM with a lower TP of RM15.05 on lower earnings with a revised 18.0x FY18E PER (from RM15.30 on 17.6x FY18E PER, previously).

9M17 missed expectations. 9M17 PATAMI of RM171.2m made up 72% of both our and consensus estimates. We deem this to be below expectations in anticipation of a weaker 4Q17 period, based on a later 2018 CNY season. The negative deviation was a result of lower-thanexpected contributions from the Singaporean market. No dividend was announced, as expected.

YoY, 9M17 revenue of RM1.3b increased by 8% from better demand for premium brands in the Malaysian and Singaporean market. While operating margins for Malaysia operations expanded to 18.5% (+2.1ppt) from the above, Singapore operations saw weaker margin at 15.3% (-2.0ppt) following higher trade offer adjustments during the year. This led group operating profits to record at RM233.0m (+12%) with a slightly better margin of 17.4% (+0.6ppt). 9M17 PATAMI stood at RM171.2m (+8%) with higher effective taxes and contributions towards minority interests.

QoQ, 3Q17 top-line grew by 3% to RM423.5m, driven by greater sales of premium products in Malaysia (+14%). However, poorer sales was recorded in Singapore (-15%) following higher trade offers during the quarter. The latter dragged group operating profit to RM56.0m (-32%). With lower effective taxes, 3Q17 PATAMI declined by 30% to RM42.8m.

Premium products to helm growth. While the general domestic market may continue to be soft from weaker consumer spending, the group’s emphasis on “premiumisation” of offerings appears to be bearing fruit given the strong reception in the on-trade and off-trade segments. Furthermore, more extensive efforts to develop premium offerings could allow the group to ride against market weaknesses given the more resilient demand against the cheaper non-premium brands. However, net sales in the Singapore market took a hit from increasing exposure to trade offer adjustments to push volume growth and is expected to persist in the short term. Nonetheless, we believe the anticipated growth from Malaysian operations should well enough cushion the lower Singaporean contributions. At the meantime, the Sri Lankan operations appear to be operational again post its May 2016 flood predicament and is looking to once again contribute positively to the group, albeit at an immaterial level currently.

Post-results, we trim our FY17E/FY18E earnings estimates by 5.7%/3.7% to account for lower profit contributions from the Singapore market.

Maintain MARKET PERFORM with a lower Target Price of RM15.05 (from RM15.30, previously). Our target price is based on the revised FY18E EPS of 83.6 sen on a slightly higher 18.0x PER (from 17.6x, previously) as we relook into the stock’s 3-year mean PER. At current price, the stock could potentially offer a dividend yield of 4.9%/5.1% in FY17/FY18 for yield seeking investors.

Risks to our call include: (i) lower-than-expected sales from both markets, and (ii) poorer demand for premium products.

Source: Kenanga Research - 4 Dec 2017