Results

1QFY15  net  profit  of  RM54.6m  came  in  within  expectations, accounted  for  26.5%  and  26.9%  of  ours  and  consensus estimates, respectively .

1Q  usually  accounts  for  22-28%  full  year 

Forecasts and  we continue  to  expect  beer  consumption  volume  for  the remaining  9M  to  be  weak from lower spending power as well as  potential  higher  ASP  due  to  GST  implementation  in April 2015.

Highlights 

1QFY15  revenue  grew  by  20.7%  yoy  thanks  to  improved pricing  and  brand  mix.  Furthermore  the  group  benefit ed  from the  Government’s  measure  against  contraband  beers  and slight  improvement  of  consumer  sentiments.  Qoq,  sales decline  mainly  due  to  seasonality  as  1Q  is  usually  weaker than 4Q.

Net  profit,  however,   experienced  a  slower  growth  yoy resulted  from  higher  oper ating expenses  such  as  higher payments  on  excise  duty  and  sales  taxes.  Qoq  net  profit grew  further  from  lower  production  costs  and  commercial spent.

To  recap,  management  mentioned  in  the  previous  analyst briefing  that  the  increase  in  excise  duty  and  s ales  tax payments  are  due  to  a  new  valuation method for excise duty put  in  place  by  the  Royal  Malaysian  Customs  which  took effect from  Nov  2013  onwards.

Going  forward,  market  environment  remained  challenging due  to  the  rising  costs  of  living  and  uncertainties  around  the impact of GST.

We  believe  the  group  will  continue  to  focus  on  growing momentum  though  commercial  initiatives,  innovation  and driving  investment  efficiencies.   

Risks

• Excise duty hike after absence  of 9  years.
• Higher-than-expected  raw material prices.
• Lower-than-expected  TIV.  
• Continuous  decline in market share.

Rating

HOLD

• 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

• No  changes  to  our  HOLD  recommendation  on  Guinness Anchor  Bhd  and  target  price  of  RM14.39  based  on  DCF valuation.

Source: Hong Leong Investment Bank Research - 17 Nov 2014