Results

• 1QFY16 net profit of RM63.1m came in within expectations, accounted for 26.7% and 27.9% of ours and consensus estimates, respectively.

• 1Q usually accounts for 22-28% of full year forecasts. Whilst the results are promising, we continue to be cautious of beer consumption volume on the back of the prevailing low consumer sentiment.

Deviations

• None.

Dividends

• None.

Highlights

• Yoy: 1QFY16 revenue grew by a marginal 3% attributed to higher sales driven by improved brand visibility, better pricing and promotions. The relatively strong performance in a lackluster environment is a reflection of consumers sobering off the GST hangover in 4QFY15.

• Furthermore, the group benefited from the Government’s measures against contraband beers which has aided the duty paid market.

• Subsequently, net profit increased by RM63.1m or 15% yoy due to optimized channel execution and improved cost efficiencies. EBITDA margins improved by 2.3ppt yoy.

• Going forward, market environment remains challenging due to the rising costs of living and despite the positive results, consumer sentiment is still low. Furthermore, in the absence of excise duty hike for 9 years, we are extremely cautious on the potential for a hike, considering the steep 40% hike in tobacco excise duty recently.

• Moving forward, 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.
• Decline in market share.

Forecasts

• We updated our numbers based on the latest annual report figures. FY16 EPS increased by 0.65%. We introduce FY17 numbers.

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. We updated the latest beta which resulted in our TP increasing to RM14.41 from RM13.92 (WACC: 8.07% TG: 2.5%)

Source: Hong Leong Investment Bank Research - 25 Nov 2015