- We maintain our BUY rating on Guinness Anchor (GAB) but tweak our DCF-derived fair value to RM15.80/share (vs. RM16.00/share previously) following housekeeping changes to our numbers post its FY15 results announcement.

- GAB ended its FY15 on a stronger note with 4QFY15 net profit of RM44mil (QoQ: +12%; full-year contribution of 20% vs. 17% historically). Its cumulative FY15 earnings of RM214mil (YoY: +8%), which came on the back of revenue of RM1.7bil, were within our and consensus estimates.

- A final single-tier interim dividend of 51 sen/share was also proposed. Coupled with its interim dividend of 20sen/share, GAB’s total NDPS for FY15 is 71sen/share and represents a 100% payout (FY14: 64.5sen/share, 98% payout). This translates to a yield of 5.5%.

- The rebound in the group’s earnings in FY15 (FY14: -9% YoY) can be primarily attributed to volume recovery in the domestic malt liquor market. YoY, GAB’s volumes rose 6.7% thanks to its dominant position (~60% market share), strong franchise value, and increasingly attractive stable of brands.

- While GAB maintained its focus on innovation and premiumisation in FY15 (e.g. launch of Smirnoff Ice RTD and extension of Strongbow line), we note that the group had also successfully predicted the potential downtrading by consumers given the downtrend in consumer sentiment (-28 points YoY). Anchor, which is positioned as a value-formoney product, was the fastest growing brand in its portfolio.

- Interestingly, we learnt that the improvement in volumes was also due to an earlier-than-expected normalisation in demand post-GST implementation. According to management, consumption was only impacted in April but had recovered in May.

- On a sequential basis, GAB’s revenue was lower by 9% in view of the seasonally weaker demand after the CNY festivities in 3Q. That said, its net profit had increased by 12% QoQ due to the timing difference of its A&P expenses and better cost management. Its EBITDA margin had expanded by 4.6ppts QoQ.

- Given that GAB’s raw materials are procured in USD and Euro, the weakening RM could create cost challenges moving forward. Following various cost efficiency and optimisation programmes, its operating expenses has been on a decline (YoY: -16%). That said, we understand that GAB’s net forex exposure is less than 50% given its natural hedge from contract manufacturing.

- At the current price, GAB is trading at an FY16F PE of 17x. Our fair value implies a forward PE of 21x. GAB’s PE band had ranged from 11x-27x in the past five years.

Source: AmeSecurities Research - 17 Aug 2015