CAB’s  1HFY13  net  profit  of  MYR81.4m  (-10%  y-o-y)  fell  short  of expectations. An interim dividend of 5 sen per share was declared.  We cut our FY13/FY14 net profit forecasts by 15%/18% respectively. In turn, we  lower  CAB’s  FV  to  MYR13.32  from  MYR15.73,  based  on  FCFF valuation (WACC: 7.6%, TG: 2.5%). We maintain NEUTRAL on the stock, given its robust balance sheet and operating cash flow generation. 
 
- Below expectations. CAB’s 1HFY13 net profit of MYR81.4m (-10% y-o-y)  fell  short  of  expectations,  making  up  only  40%  and  39%  of  our  and consensus  full-year  estimates.  During  the  quarter,  core  earnings  fell  by 18%  y-o-y  (-39%  q-o-q),  due  to:  i)  lower  profit  contribution  from  its Singaporean  operations,  and  ii)  higher  interest  cost  incurred  after increasing  its  short-term  borrowings  by  MYR94m.  More  of  a  concern  is the  fact  that  2QFY13  was  plagued  by  lower  sales  volume  and  softer demand. An interim dividend of 5 sen per share was declared.

- Outlook. Going forward, overall sales volume may stay weak, given that domestic criminal activities have been rampant of late, affecting on-trade sales.  We  do  not  foresee  an  increase  in  excise  duty,  as  the country’s brewers  are  being  charged  the  second-highest  rate  in  the  world  behind Norway.  As  for  its  Singaporean  operations,  intense  competition  from imported beers is likely to persist, giving CAB a run for its money.

-  Forecasts  and  risks.  We  cut  our  FY13/FY14  net  profit  forecasts  by 15%/18%  after:  i)  lowering  our  sales  volume  assumption  by  1%/2%,  ii) imputing higher opex assumption, and iii) adding additional borrowings of MYR100m  into  our  model.  The  key  risks  to  our  forecasts  include:  i)  an excise  duty  hike,  ii)  weaker  sales  volume,  and  iii)  higher  than  expected raw and packaging materials costs.

-  Investment  case.  Following  the  downward  revisions  in  our  financial forecasts, we lower CAB’s FV to MYR13.32 from MYR15.73, based on FCFF  valuation  (WACC:  7.6%,  TG:  2.5%).  This  represents  an  implied FY14F  P/E  of  22.0x,  in  line  with  global  peers.  Despite  the  mediocre outlook, the group has a strong balance sheet and robust operating cash flow generation to support its dividend yield of 4%. Maintain NEUTRAL.

Source: RHB