GAB – Fundamental Analysis (8 Nov 2014)

GAB Analysis:-

Excel –

My View:-

– Fair values:
  – 5-Y DCF:
    – Good Scenario: 15.70 (Fair value uncertainty: MEDIUM)
    – Base Scenario: 13.69 (Fair value uncertainty: HIGH)
    – Bad Scenario: 11.90 (Fair value uncertainty: VERY HIGH)
    – Ugly Scenario: 10.31 (Fair value uncertainty: EXTREME)
  – Absolute EY% Valuation:
    – Trailing:
      – FY14 (EPS: 0.656) – Fair value 14.02 (Fair Value Uncertainty: MEDIUM)
      – R4Q (EPS: 0.656) – Fair value 14.02 (Fair Value Uncertainty: MEDIUM)
    – Forward:
      – FY15 (EPS: 0.666) – Fair value 14.23 (Fair Value Uncertainty: MEDIUM)
      – FY16 (EPS: 0.703) – Fair value 15.02 (Fair Value Uncertainty: MEDIUM)
    – EPS applied to reach the current stock price (13.04): 0.61
– At the current price, fair value uncertainty for both models are from MEDIUM to HIGH.
– The dividend return spread between GAB and CARLSBG vs the 10-year MGS yield has narrowed to only 30-40bpts vs the  historical  10-year average of 280-290bpts. (Source: RHB)
– GAB’s focus on FY15 would be on better cost management by enhancing its efficiency and capability, while the product strategy would see better innovation with more quality new addition to its product portfolio. (Aug 2014)
  – In FY15, GAB plans to manage its cost more prudently by improving operational efficiency. Besides, the Group also expects to increase its portfolio by introducing more new products through innovation. New products launched in FY14, including Kirin Ichiban, the best-selling super premium brand in Japan and Smirnoff Ice, the world number 1 RTD brand which received good response, which was reflected in 4Q14 sales growth of 10.8% QoQ. Meanwhile, GAB would still be counting on its core brands, namely Heineken, Tiger and Guinness moving forward in sustaining the sales volume. Although GAB did not reveal the sales figure of the brands, we gathered that Heineken recorded the best sales growth among the core brands, followed by Tiger and Guinness in FY14.
– GAB expects the Malt Liquor Market (MLM) moving forward to remain competitive and challenging, in view of the unfair competition from contraband beers, of which the sales price per unit is lower than the excise duty alone imposed on GAB’s beers as Malaysia has the second highest excise duties for beer and stout products in the world. Meanwhile, the Group is also concerned on the imminent implementation of the GST in April 2015, which may further dent the consumer sentiment and thus discretionary spending.
– 2014/15 will be a challenging year for brewers due to competition from contrabrand beers and as consumer spending dwindles.
– In my opinion, there is still some downside risk even though the share prices of both stocks have fallen sharply from last year’s peaks (down 30-45%). 11.60 – 13.00 is a good support zone, from fundamental and technical aspect. Chances of GAB dropping below this zone is low.
– If GAB manage to achieve growth in FY15, that means GAB have managed the [impact of] GST and played the market share game well. If that happens, GAB will be good to go.
– GAB will not make any profit out of the GST, but they need to get the margins right for the distributors and they need to recommend the distributor price. However, they cannot set pricing in the whole tier system.

Latest Financial – Annual Report 2014 (06 Nov 2014)

At the time of writing, I owned shares of GAB.


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