GAB’s 1QFY13 earnings rose 2.9% y-o-y to RM56.8m despite the absence of speculative buying prior to the unveiling of the 2013 Budget and the shortened quarter, during which the company halted business dealings for nine days to migrate to a new IT system. The industry’s product mix continued to improve, and this has had the effect of boosting ASPs and margins. The shortened 1Q and lack of speculative buying should lead to stronger volumes in 2Q. We are keeping our forecasts and FV unchanged at RM17.47. Maintain BUY.
Within estimates. GAB registered revenue of RM392.3m (-11.8% y-o-y) and earnings of RM56.8m (+2.9% y-o-y) as the company closed its books for the first quarter of FY13. Revenue declined y-o-y as a result of: i) the absence of speculative purchases prior to the announcement of Budget 2013 (it was pretty clear that there would not be a hike in beer excise duty), ii) an intended reduction in duty-free volume in view of the thin margins from such sales, and iii) a shorter business period (please see the next paragraph). Group earnings, nonetheless grew y-o-y, thanks to a more favourable product mix, which led to higher ASPs per litre sold, which in turn boosted profit margins. On a sequential basis, revenue and earnings grew 13.4% and 63.1% respectively due to the seasonally higher volume (the Chinese Hungry Ghost Festival). The quarter’s profits made up 25.0% and 25.5% of our and consensus’ full-year forecasts.
A shorter quarter. GAB stopped taking orders and did not ship beer for nine days at the end of 1Q as it migrated from four old IT platforms to two new ones. The new IT infrastructure, which costs RM35m, standardizes supply chain processes and provides a more comprehensive look into GAB’s efficiency and productivity. The company can now create individual P&Ls for each selling location based on sales volume achieved and expenses incurred (including complimentary mugs, banners and signboards). This will gives GAB: i) greater leeway in analyzing the effectiveness of its distribution and marketing, ii) a better understanding of its portfolio’s demographic appeal, and iii) more transparency to improve each outlet’s profitability.
2Q expectations. The shorter 1Q meant that some selling volume and commercial expenditure had been deferred to 2Q. Hence its 2Q earnings would capture nine additional days of business (ie 2Q will become 9.8% longer). In addition, with minimal speculative purchases before the Budget this time around, retailers’ stockpiles are likely to be lower than that in 2Q last year. These two factors point to stronger y-o-y 2QFY13 sales volume. However, as the upcoming Chinese New Year will fall on a later date in 2013 (10 Feb vs 23 Jan in 2012), we expect some CNY purchases to potentially spill over to 3QFY13, unlike in FY12 when most of the purchases were concentrated in 2Q.
Within estimates. GAB registered revenue of RM392.3m (-11.8% y-o-y) and earnings of RM56.8m (+2.9% y-o-y) as the company closed its books for the first quarter of FY13. Revenue declined y-o-y as a result of: i) the absence of speculative purchases prior to the announcement of Budget 2013 (it was pretty clear that there would not be a hike in beer excise duty), ii) an intended reduction in duty-free volume in view of the thin margins from such sales, and iii) a shorter business period (please see the next paragraph). Group earnings, nonetheless grew y-o-y, thanks to a more favourable product mix, which led to higher ASPs per litre sold, which in turn boosted profit margins. On a sequential basis, revenue and earnings grew 13.4% and 63.1% respectively due to the seasonally higher volume (the Chinese Hungry Ghost Festival). The quarter’s profits made up 25.0% and 25.5% of our and consensus’ full-year forecasts.
A shorter quarter. GAB stopped taking orders and did not ship beer for nine days at the end of 1Q as it migrated from four old IT platforms to two new ones. The new IT infrastructure, which costs RM35m, standardizes supply chain processes and provides a more comprehensive look into GAB’s efficiency and productivity. The company can now create individual P&Ls for each selling location based on sales volume achieved and expenses incurred (including complimentary mugs, banners and signboards). This will gives GAB: i) greater leeway in analyzing the effectiveness of its distribution and marketing, ii) a better understanding of its portfolio’s demographic appeal, and iii) more transparency to improve each outlet’s profitability.
2Q expectations. The shorter 1Q meant that some selling volume and commercial expenditure had been deferred to 2Q. Hence its 2Q earnings would capture nine additional days of business (ie 2Q will become 9.8% longer). In addition, with minimal speculative purchases before the Budget this time around, retailers’ stockpiles are likely to be lower than that in 2Q last year. These two factors point to stronger y-o-y 2QFY13 sales volume. However, as the upcoming Chinese New Year will fall on a later date in 2013 (10 Feb vs 23 Jan in 2012), we expect some CNY purchases to potentially spill over to 3QFY13, unlike in FY12 when most of the purchases were concentrated in 2Q.
Maintain BUY. We are keeping our FY13 and FY14 earnings forecasts unchanged. Our FV hence remains at RM17.47, based on our FCFF model (WACC: 7.1%, terminal growth: 2.2%). The brewers are our preferred sin sector exposure in light of the industry’s healthy volume growth and improving product mix. GAB is our favourite pick due to its stellar corporate governance and strong brand portfolio across all price points.
Source: OSK
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