Post-meeting, we maintain our cautious stance on the group’s near-term outlook, being afflicted by: (i) weaker quarters ahead as on-trade sales remain bleak amidst the ongoing pandemic, as well as (ii) possibly lower dividend payout following the suspension of its quarterly dividend payments. Reiterate UNDERPERFORM with unchanged TP of RM21.00, as we believe the current valuations have yet to fully price in the near-term negatives.

1Q20 results recap. Recall that for 1QFY20, the group recorded 11% and 17% YoY drop in respective sales and earnings. The softer earnings were largely dragged by the absence of CNY front-loading this quarter as well as weaker on-trade sales from both Malaysia (enforced MCO from 18 March – 3 May) and Singapore triggered by the pandemic outbreak. Note that Singapore’s “Circuit Breaker” spanned from 7 April to 1 June, hence its full-impact to on-trade sales can be expected in the coming 2QFY20 quarter.

Slow recovery expected from on-trade channels. Post-meeting, we gathered that a number of on-trade channels in Malaysia (c.20-30% of modern on-trade and c.70% of traditional on-trade) have gradually resumed operations after the implementation of Conditional MCO (CMCO) from 4 May, which saw a week-on-week growth from the ontrade sales numbers. Nonetheless, the group’s on-trade sales growth could still be capped for the year, as the expected week-on-week growth from an extremely low base during MCO and the recovery from such channels moving forward are expected to be limited by: (i) shorter operating hours and lower capacity per store in compliance with social distancing measures, as well as (ii) slim possibility for the re-opening of night clubs and KTVs in the near-term.

More prudent measures to be taken. Given the considerably tremendous impact from the virus outbreak, the group will be exercising more controlled and targeted cost controls moving forward. Notably, marketing efforts will be mainly redirected towards digital marketing on social media platforms to drive growth from its off-trade and e-commerce channels, tapping into the shifting consumer purchasing patterns. We gathered that the group has also restructured close to 50% of its sales force.

Post meeting, we affirmed our cautious outlook on the group’s nearterm prospects as a bulk of its earnings look to be compromised by weaker on-trade sales which takes up two-third of the group’s total sales. Hence, we revised our FY20E earnings downwards by 16.2% while maintaining FY21E earnings forecast, as we account for more aggressive sales cuts and lower marketing costs in FY20. While the group is keeping its 100% dividend pay-out policy unchanged for now, we maintain a more conservative dividend pay-out estimates at51% and 88% for FY20 and FY21, respectively.

Maintain UNDERPERFORM and TP of RM21.00 pegged to an unchanged PER of 23x (closely in-line with its 3-year mean). While we still like the group for its long-term premiumisation growth story, we believe the current valuations have yet to fully price in the anticipated weaker earnings and lower dividend-pay-out moving forward. Upside risks include: (i) stronger-than-expected recovery from on-trade sales, and (ii) higher-than-expected dividend payment.

Source: Kenanga Research - 3 Jun 2020