Period  1Q14

Actual vs. Expectations  Guinness Anchor (GAB) reported net profit of RM49.6m for 1Q14, generally in line with estimates, at 21.5% of the consensus' full year numbers (RM230.5m), and 22.1% of ours (RM224.0m), respectively.

Dividends  No dividends were declared for the quarter. For the remainder of the financial year, we are expecting dividends to be declared for the 2nd and 4th quarter, totalling 70.4 sen.

Key Results Highlights  YoY, revenue declined by 16.9% from RM392.3m in 1Q13 to RM325.8m in 1Q14. This was mainly due to planned reduction in distributor stocks, in addition to the weaker consumer spending due to the rise of fuel price and inflation over the past quarter. While the impact to earnings was partially mitigated by better cost management and through a more favourable product mix, 1Q14 NP was 12.7% lower at RM49.6m compared to RM56.8m in 1Q13.

 QoQ, revenue dropped by 20.9% from RM412.1m to RM326.0m in 4Q13 due to reasons mentioned above. Nevertheless, NP improved by 48.3% and this was attributed to the lower commercial spend during the quarter. Note that the preceding 4th quarter is seasonally the weakest quarter when GAB typically incurs higher costs on brand-building activities. As a result, net margins improved by 7.1ppt QoQ to 15.2%.

Outlook  Although the: (i) absence of an excise hike during the budget-2014 and (ii) Visit Malaysia Year 2014 are positives for the brewers, we remain cautious on GAB's outlook and prospects as consumer spending could be further dampened by the government's plans to rationalize subsidies, as well as the planned implementation of the GST.

Change to Forecasts  No changes to our FY14E-FY15E earnings forecasts of RM224.0m-RM239.9m.

Rating  Maintain UNDERPERFORM

Valuation  We maintain our TP at RM16.52 based on a DCF valuation with a WACC of 7.5%. This implies a PER of 20.8x over FY15 earnings.

Risks to Our Call  Higher input cost

 Loss of market share. 

Source: Kenanga