- We maintain our HOLD recommendation on Guinness Anchor Bhd (GAB) with an unchanged DCF-based fair value of RM15.40/share.

- The Edge Financial Daily today reported that GAB will be raising the price of all its products except Anchor beer by 3%-5% from 17 March 2014.

- This translates to 40 sen, 50 sen and 80 sen increases in per pint prices of its leading brands, Tiger (60% of its volumes), Heineken and Paulaner.

- Management believes that the price hikes are needed to offset rising costs given that malt, fuel and packaging expenses are set to rise by 4%-10% this year.

- Although it has been a norm for the brewers to raise prices by a similar percentage each year, the timing of this year’s hike is nonetheless unexpected. In previous years, price hikes occurred in April/May.

- In addition, this is the first time that the price hike is across the board. In the past, it was only for selected products.

- We suppose that Anchor beer - GAB’s value segment brand - was spared a price increase as its customers are more price sensitive. In its recent 2QFY14 results briefing, management also said that there has been an uptick in Anchor’s volumes (5% of GAB’s overall volumes).

- We are not surprised by this as we believe that consumers, who have been feeling the pinch from higher living costs, have been downgrading from premium to mainstream (Tiger) and value brands. The price points for premium (Heineken, Guinness FES) and imported (Paulaner) lines are 10%-30% higher than mainstream’s.

- In view of the price hikes and its downward pressure on volumes, we have tweaked our FY14F-FY16F earnings forecasts by -1% to -2%.

- While we now assume a flat MLM volume growth (vs. +1% to +2%, previously), we expect its EBIT margins to remain relatively stable at ~17%. The latter will be supported by management’s various cost efficiency programs and product/channel mix.

- We also understand that the group will be launching new products/line extensions in the next 6-18 months across all segments with a focus on expanding its premium range. Thus far, the group has introduced 2 new line extensions, namely Tiger Radler and new variants of Heineken (e.g. club bottles, 5L kegs and Sub-zero). 

Source: AmeSecurities