GAB (FV RM14.20- BUY) 1HFY12 Results Review: A Dragon Boost

GAB registered 6MFY12 earnings of RM121.0m (+17.1% y-o-y), exceeding our expectations. The earlier Chinese New Year festival and  more aggressivemarketing efforts boosted 4Q sales volume, with Tiger remaining as Malaysia’s favourite beer while Guinness and Heineken continued to perform. 2HFY12 should be weaker than the first half given the lack of major alcohol-consuming festivitiesin the coming months (remains to be seen how much the two upcoming global sporting events will boost sales). Maintain BUY at FV of RM14.20.

Above forecast. GAB posted 2QFY12 revenue of RM468.3m (+11.1% y-o-y, +5.3% qo-q) and earnings of RM65.8m (+1.8% y-o-y, +19.2% q-o-q). 6MFY12 earnings, meanwhile, clocked in at RM121.0m (+17.1% y-o-y) on the back of stronger sales volume. EBIT margins inched up slightly to 17.7% (+0.2 ppt y-o-y) from favourable brand mix and some lower costs. All in, GAB’s half year earnings were above estimates, representing 58.9% of our full year forecast and 60.5% of consensus’. When annualized, revenue beat our estimate by 13.4%.

Yum Seng celebration. The earlier Chinese New Year timing this time around boosted 2Q volume. Coupled with numerous marketing initiatives (e.g. Tiger Street Football, Heineken Thirst), GAB posted its highest monthly sales volume ever in December 2011. Tiger remains the most popular beer in the country while its premium beer brand Heineken recorded double-digit growth. With no beer duty hikes in Budget 2012, we believe domestic MLM volume will continue to enjoy positive growth.

Euro 2012 a kicker? While GAB’s 1HFY11 earnings, when annualized, was 18% above expectations, the first half of the financial year has traditionally been the stronger half due to demand from festivities such as Christmas and Chinese New Year. Over the past six FYs, only FY10 saw earnings skewed towards the second half (with 54% of full year profits). For the remaining five FYs, first half contribution has accounted for 52-57%, even during  the  Germany World Cup 2006  (4QFY06 profits at 32% of full year)  and Austria/Switzerland  Euro 2008 (4QFY08 profits at 16% of full year).  As such, whether the Ukraine/Poland Euro 2012 will be a major kicker to volumes remains a question.

Maintain BUY. We are keeping our earnings forecast under review pending sales volume indications during GAB’s analyst briefing on 28 Feb.  As of now, we estimate sales volume to grow by 5.5% in FY12. We are keeping our FV unchanged at RM14.20, based on our FCFF valuation with an unchanged WACC of 8.0% and terminal growth of 2%. We are looking to tweak our earnings forecast a tad upwards and lower our WACC assumptions following the adoption of debt on its balance sheet.

Source: OSK188