Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD
Research House: MAYBANK

Brewery
Upgrade to overweight from neutral: The silence on excise duties for alcoholic beverages was confirmed to be good news for brewers, following a press statement from Guinness Anchor Bhd (GAB) regarding another year of reprieve. We upgrade net profit forecasts for GAB by 3% to 12% for FY11/13, and our call to a 'buy' (from 'hold') and our target price (TP) to RM9.60 (from RM8.40). Maintain 'buy' on Carlsberg with a higher discounted cash flow-based TP of RM5.70 (from RM5.50) after raising our 2010/12 net profit forecasts by 4% to 6%.

The government surprised everyone by omitting any mention of excise duty changes for alcoholic drinks for a sixth consecutive year since 2005. Leading local brewers had only just individually reported the first year of increased sales volumes in 2009 that cumulatively also exceeded 2005's sales volumes for the first time.

We initially imputed a 4% to'' 5% excise duty hike in 2010/12. The absence of a hike in 2010 is highly positive for sales volumes in 2010/11 and net profits for both Carlsberg and GAB. As a result, we now expect a minimum 5% volume growth for the industry instead of just 1% in 2010. In tandem with a now lower 3% increase in average prices instead of 8%, this will raise GAB's FY10/12 net profit forecasts by a further 3%, 9% and 12% respectively. arlsberg is less positively affected due to its high share of earnings contribution from overseas, but its 2010/12 net profit should still rise a further 4% to 5% from our initial forecasts.

The brewers' oft-repeated line that excise duty on beer is the second highest globally seems to be effective still. Possibly, it is also hoped that without excise-led price hikes, the illicit sale of alcoholic beverages will not scale the heights of illicit tobacco sales in the country, reported to be the second-highest level globally.

With the government's recent stress on the increased importance of tourism revenue and raising the country's attractiveness to conduct business, brewers may have been an unwitting, collateral beneficiary. If tourism and business conduciveness are truly the main aims, there could be yet significant further upside to our 2011/12 forecasts for both brewers.

We raise our FY11/13 forecasts for GAB by 3% to 12% and DCF-based TP to RM9.60 from RM8.40 as a result. We are also buyers of Carlsberg with a raised DCF-based TP of RM5.70 (from RM5.50) after raising our 2010/12 net profit forecasts by 4% to 6%. ' Maybank Investment Bank Bhd Research, Oct 18


This article appeared in The Edge Financial Daily, October 19, 2010.