News

News reported that Guinness Anchor Bhd will be increasing the prices of its alcoholic beverages, except Anchor Beer, by 3-5% from 17 March 2014.

Tiger Beer, the group’s best seller, will soon cost 40 sen more for a pint, while Heineken and Paulaner will be 50 sen and 80 sen more, respectively.

According to the group, it expects malt costs to increase by 5%, packaging material costs by 4%, fuel costs by 10% and energy costs by 10%.

Comments

We are neutral on the hike as brewery players imposes price hike on selected products on an annual basis to recover rising costs.

We believe the rising costs were also due to the removal of subsidies (fuel) and the implementation of tariff hike (energy).

The price hike and increase in costs for 2HFY14 and are not surprises to us as they are within our expectations and have been imputed into our forecasts.

As for the impact from the 3-5% price hike, we believe the quantum is reasonable as it remained consistent every year. Comparing to the quantum of the rise in costs (estimated to be on average of mid-single-digit), we view that it is being passed on to consumers and absorbed by GAB equally. Recall that GAB last raised its products price in April 2013 by an average of 3%.

We continue to expect GAB’s volume growth to be minimal for FY14 and FY15 given the tough economic environment, which will also be partially offset by the price hike implementation this month.

With GAB announcing the price hike, we believe Carlsberg would also follow suit soon, given the oligopoly nature of the sector in the country.

Risks

• Excise duty hike after absence of 8 years
• Higher-than-expected raw material prices
• Lower-than-expected TIV
• Continuous decline in market share

Forecasts

Unchanged.

Rating

BUY

Positives – 1) Relatively high dividend yield stock; 2) Duopoly industry; and 3) Resilient earnings and low capex requirements.

Negatives – 1) Highly regulated industry; and 2) Potential excise duty hike.

Valuation

Maintain BUY with unchanged TP of RM17.05 based on DCF valuations.

Source: Hong Leong Investment Bank Research - 6 Mar 2014