GAB (FV RM17.47 – BUY) Corporate News Flash: A New Captain

THE BUZZ

After  almost  six  years  at  the  helm  of  GAB,  Charles  Ireland  will  pass  on  the  Managing
Director baton into the hands of Hans Essaadi, effective 1 March 2013.

OUR TAKE

Passing  the  baton.  Ireland’s handover to Essaadi will  occur  at  the  end  of  the former’s term  as  GAB  MD  in  two  months’ time.  The  company  is  51%-owned  by  GAPL  Ltd,  a  joint venture between Diageo and Asia Pacific Breweries (which is ultimately held by Heineken). Hence,  GAB  practices  a  rotational  system,  whereby  representatives  from  this  two  major shareholders, Diageo and Heineken, will take turns to occupy its top post. Ireland, who had been  with  Diageo  since  1997,  replaced  Theo  de  Rond  from  Heineken  as  GAB  chief  in 2007.

Charles’ legacy.  Under  Ireland’s stewardship,  the company’s malt liquor market (MLM) volume market share grew from 55% in FY07 to 60% in FY12. GAB’s volumes increased by a CAGR of 8.3% during his tenure, outpacing the industry’s 6.3% average annual growth. Consequently, revenue and earnings expanded every year at an 8.7% and 13.0% average  growth  rate  respectively.  We  continue  to  view  GAB  as  having  a  more  superior operational  efficiency  compared  to  its  key  rival,  with  the  recent  RM35m  IT  infrastructure investment giving it even greater transparency in its productivity and profitability.

Hans’ chapter.  Essaadi  has  been  with  Heineken  for  over  20  years,  with  experience  in Central and Eastern Europe, Central America and the Middle East. His latest posting was as  General  Manager  of  Sirocco  FZCO  in  Dubai  since  2008,  a  post  he  held  till  December 2012. Sirocco, a joint venture between Heineken and the Emirates Group, does not have a production  facility  but  focuses  on  selling  and  marketing  Heineken  and  other  premium brands  in  the  Gulf  region.  The  Dutch  national  has  also  worked  at  Brau  Union  in  Austria, which has eight breweries across the country, in 2005-2008. Essaadi joins GAB at a time when key rival Carlsberg has successfully transformed itself from being traditionally viewed as  a  one-brand  company  into  one  with  diversified  offerings  within  the  mid  and  high  price ranges.  With  his  experience  in  business  development,  sales  and  brand  marketing, Essaadi’s appointment may be helpful in further beefing up GAB’s currently dominant position in the premium segment.

Maintain  BUY. We  believe  the  industry  will  continue  to  enjoy  improving  product  mix  and steady volume growth in 2013 in the absence of a beer excise hike during the 2013 Budget announcement. We continue to like GAB for its stellar corporate governance, strong brand portfolio  across  all  price  points  and  its  leading  market  share.  Maintain  BUY  with  a  FV  of RM17.47, based on our FCFF model (WACC: 7.1%, terminal growth: 2.2%).

Source: OSK