GAB – Fundamental Analysis (6 Feb 2015)

GAB Analysis:-

Excel – http://1drv.ms/1DLsrE5

Notes – http://tinyurl.com/n75kles

My View:-

  • Fair values:
    • 5-Y DCF:
      • Good Scenario: 15.7 (Fair value uncertainty: LOW)
      • Base Scenario: 13.69 (Fair value uncertainty: MEDIUM)
      • Bad Scenario: 11.9 (Fair value uncertainty: HIGH)
      • Ugly Scenario: 10.31 (Fair value uncertainty: VERY HIGH)
      • If growth of FCFF in the next 5 years is 6.8%, GAB still worth 12.2.
    • Absolute EY% Valuation:
      • Trailing:
        • FY14 (EPS: 0.656) – Fair value 13.99 (Fair Value Uncertainty: MEDIUM)
        • R4Q (EPS: 0.706) – Fair value 15.04 (Fair Value Uncertainty: MEDIUM)
      • Forward:
        • FY15 (EPS: 0.673) – Fair value 14.35 (Fair Value Uncertainty: MEDIUM)
        • FY16 (EPS: 0.706) – Fair value 15.04 (Fair Value Uncertainty: MEDIUM)
      • EPS applied to reach the current stock price (12.2): 0.572
  • At the current price, fair value uncertainty for both models are from MEDIUM to HIGH. GAB is still slightly undervalued.
  • 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 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.
  • 2015 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 – Q2 2015 Financial Report (5 Feb 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1869293

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

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