Higher A&P expenses to boost sales volume In light of weaker consumer spending and saturating alcohol consumption in the country, we foresee a tough operating environment for GAB. Its aggressive launch of new products will have minimal impact on its bottomline as product launches entail A&P spending.
Weak demand, higher operating costs, saturating consumption levels and the higher incidence of contraband add up to a tough operating environment for GAB. Its dividend yield of 4.4-4.7% seems low for the risks taken. We maintain our Reduce call while lowering our DCF-based target price as we increase our beta assumption to be more in line with its beta. Switch to F&B or REITs for yields. Poor consumption and higher A&P cost hit 3Q GAB performed worse than Carlsberg in the quarter ending Mar, with revenue dropping by 15.8% and net profit plunging by 41.9% yoy due to weak consumption and high advertising and promotion expenses. Despite the environment of weaker consumption, GAB will continue to invest in A&P in the hope that each dollar spent will translate into better sales volume. More new products in the pipeline GAB has launched two new super premium products in the past few months – Kirin Beer in Mar/Apr and Sminoff in Jun. Apart from these new products, we understand that GAB plans to roll out two more new products in the premium segment in FY15. A&P expenses are expected to remain high in FY15 due to the committed new launches. 4Q results will remain weak GAB’s 4QFY6/14 results could be weaker yoy due to poor consumption and high A&P expenses. While the company is launching premium products aggressively, new products take time to gain recognition and their impact on the bottomline will be minimal for now. Furthermore, Carlsberg which has a larger premium product portfolio is stronger in the premium segment.
There are only two beer companies in Malaysia. No matter what the beer market will be the beer companies will never go out of business. The companies only have pe ratio of around 18 times which is still not too high. The best part is they pay out most of their net profit for the year as dividends which is quite high.
New IPO: The onshore and offshore support services provider for the O&G industry, Steel Hawk Bhd aims to list on the Ace Market!
MQ Trader 3141 views | 3 d ago
0:17
New IPO: The largest mini-market player and a leading groceries retailer in Malaysia, 99 Speed Mart Retail Holdings Bhd aims to list on the Main Market!
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
haikeyila
1,068 posts
Posted by haikeyila > 2014-06-12 15:40 | Report Abuse
Don't let one bad quarter influence your longterm outlook. Time to accumulate.