- We reaffirm our HOLD recommendation on Guinness Anchor Bhd (GAB) with an unchanged DCF-based fair value of RM13.90/share.

- GAB’s 4QFY14 net profit rebounded by 32% QoQ to RM47mil to lift its FY14 earnings to RM198mil. The results were ahead of our expectations (~110%) but broadly in line with consensus (105%).

- GAB’s uncharacteristically strong showing in the final quarter of FY14 (full-year contribution of 24% vs 17% on average) can be attributed to the successful introduction of its new brands, better performance of its core portfolio and effective cost management.

- Recall that GAB is presently on a ‘premiumisation’ drive having recognised the need for a stronger portfolio. We gather that the group may be adding four more brands/line extensions to its present line-up in the coming year. Most of the new labels will be in the premium/imported segment.

- In 2QFY14, GAB launched Kirin Ichiban (in April 2014) and more recently in June 2014, it expanded into the ready-to-drink (RTD) segment with Smirnoff Ice – a pre-mixed, lemon-flavoured cocktail.

- We believe that the introduction of these higher-end labels to its stable had not only helped raise its revenue by 11% QoQ, but also aided in a 2.3ppt recovery in its EBITDA margin. Note that GAB’s margin had contracted by 4ppts each in 2Q and 3Q of FY14.

- YoY, GAB’s FY14 net profit fell by 9%. This is its first earnings decline since FY07. Weak domestic malt liquor market (MLM) volumes, rising threat from contrabands (five-fold increase in the past 5-7 years) as well as higher excise duty payments were the reasons cited.

- While no excise duty hike was imposed in the past year, we understand that the Royal Malaysian Customs had changed the basis of its excise duty valuation of locally-manufactured beers in November 2013. GAB had absorbed the higher payments, resulting in its EBIT being clipped by RM18mil.

- The group declared a final single-tier dividend of 44.5 sen/share. Together with an interim dividend of 20sen/share, total NDPS for FY14 is 64.5 sen/share, representing a payout of 98.3%. This translates to a yield of 4.9%.

- Despite GAB’s better-than-expected performance, we are leaving our estimates unchanged for now, pending today’s analyst briefing. YTD, GAB’s share price has retraced by 16%. At the current price, it is trading at an FY15F PE of 21x.

Source: AmeSecurities