GAB (FV RM15.27 - BUY) Company Update: More Expensive Beer Awaits

During yesterday’s analyst briefing, GAB shed some light on its brands’ performance (albeit no concrete figures were given) and its near-term plans. GAB’s premium brands saw strong  volume growth from posh bars and pubs, while the early CNY boosted supermarket sales in December. It has also indicated its intentions to raise prices starting from end-March and its tolerance for higher debt levels. We raise our FY12-FY13 earnings forecast by 2.7-1.3% on higher volume and price expectations. Maintain BUY at FV RM15.27.

Premium brands shine. GAB’s 1HFY12 revenue grew by 15.8% y-o-y, largely driven by  the following  two factors:  (i) strong Guinness and Heineken performance, with Heineken’s volume growing by double digits, and (ii) the earlier-than-usual Chinese New Year for 2012. The modern on-trade segment (posh bars and pubs) drove Guinness and Heineken’s volume growth,  with GAB claiming that at least 80% of new bars and contract renewals across the country choose GAB as their beer supplier.

CNY effect comes early. The earlier Chinese New Year, meanwhile, boosted the offtrade segment (supermarkets) as consumers stocked up to entertain guests at home during the festive season. Retailers and dealers have procured their supplies from GAB in Dec 2011 in anticipation of robust consumer patronage in early January. Hence, it is not fair to make comparisons between 1HFY12 and 1HFY11, as 1HFY12’s volume was skewed by the earlier-festive-season factor.

Asahi not seen as a major threat. Given Carlsberg’s aggressive introduction of various brands to target the premium beer segment, there will naturally be questions on GAB’s strategy of maintaining its market share in this segment. Aside from highlighting Malaysian drinkers’ brand loyalty, the company also mentioned Asahi’s weak presence outside of Japan (Asahi is the beer Carlsberg  has chosen to invest in to  compete with Heineken). While emphasizing that the company will continue to be prudent and not take competition lightly, GAB highlighted Carlsberg’s unsuccessful attempts in the past to introduce new brands,  including Tuborg (to compete  with Heineken) and Skol (to contend with Anchor).

Price increase and potentially more borrowing. GAB will increase its prices at endMarch at a rate of 3-4% following escalating raw material costs. We also gathered that while GAB is comfortable with its current D/E ratio of 0.3x, it  is receptive to a  slightly higher ratio, thus implying that it will potentially take on more borrowings (and/or dish out more dividends). Capital expenditure for FY12 stands at around RM75m, which is higher than the usual RM30m-50m per year due to a brewery infrastructure investment project.

Source: OSK188