GAB – Fundamental Analysis (15 May 2015)

GAB Analysis:-

Excel – http://1drv.ms/1Jjbs0W

Notes – http://tinyurl.com/n75kles

My View:-

  • Fair values:
    • 5-Y DCF:
      • Good Scenario: 15.7 (Fair value uncertainty: MEDIUM)
      • Base Scenario: 13.69 (Fair value uncertainty: VERY HIGH)
      • Bad Scenario: 11.9 (Fair value uncertainty: VERY HIGH)
      • Ugly Scenario: 10.31 (Fair value uncertainty: EXTREME)
      • At current price (14.8), based on RDCF, assumption of FCFF growth rate in the next 5 years is 12.3%.
    • Absolute EY% Valuation:
      • Trailing:
        • FY14 (EPS: 0.656) – Fair value 13.88 (Fair Value Uncertainty: VERY HIGH)
        • R4Q (EPS: 0.719) – Fair value 15.2 (Fair Value Uncertainty: HIGH)
      • Forward:
        • FY15 (EPS: 0.728) – Fair value 15.4 (Fair Value Uncertainty: HIGH)
        • FY16 (EPS: 0.772) – Fair value 16.32 (Fair Value Uncertainty: MEDIUM)
      • EPS applied to reach the current stock price (14.8): 0.7
  • At the current price, fair value uncertainty for both models are from MEDIUM to HIGH. GAB is just 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.
  • 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.
  • As of FY15 Q3, the healthy volume growth is 8.2% YTD and 12.6% YoY due to the continuous illegal clampdown activities, the successful sales campaigns and the timing of Chinese New Year. The Group continued to deliver encouraging numbers with 3Q15 being the third consecutive quarter of double-digit growth in net profit. The feat was impressive considering the persistent weak consumer sentiment throughout the year.

Latest Financial – Q3 2015 Financial Report (13 May 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4735729

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

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