GUIN’s  3QFY13  earnings  grew  to  MYR61.2m  (+18.7%  y-o-y)  as  the Chinese New Year fell in February. Margins also expanded amid a better product/channel  mix  and  tighter  cost  management.  Although  business prospects  continue  to  be  supportive  of  growth,  we  deem the stock’s current  valuations  fair.  With  dividend  yields  compressed  to  just  3.5%, we maintain our NEUTRAL call, with our FV revised to MYR20.46.  

-  Within  expectations.  GUIN’s 3QFY13 revenue jumped  to  MYR442.5m (+21.3%  y-o-y,  +3.0%  q-o-q)  on  the  back  of  strong  Chinese  New  Year (CNY)  sales,  while  earnings  expanded  to  MYR61.2m  (+18.7%  y-o-y,  -7.6% q-o-q). The high y-o-y revenue and profit growth was a result of the later timing of the CNY this year, which delayed CNY-related purchases to  3Q  versus  2Q  in  FY12.  For  comparison  purposes,  2QFY13  earnings grew just 0.5% y-o-y due to the absence of CNY buying. On a sequential basis,  bottomline  was  softer  due  to  high  CNY  marketing  and  promotion expenses.  9MFY13  earnings  rose  to  MYR184.1m  (+6.7%  y-o-y), representing 81.0% and 82.0% of our and consensus’ full- year forecasts.

 
-  4Q  seasonally  softer.  4Q  is  typically  the  year’s weakest  quarter  for GUIN due to the lack of festivals between March and June, as well as the absence of inventory stocking up among retailers in 3Q in anticipation of excise  duty  being  raised  in  2013  Budget.  As  such,  the company’s 4Q profits had in the past two years made up 16.4% of its full-year earnings.

-  Margins  improve.  9MFY13  revenue  dropped  1.0%  y-o-y amid GUIN’s conscious  efforts  to  trim  its  duty-unpaid  sales volume.  Profits,  however, surged,  led  by:  i)  an  improving  product/channel  mix  and  ii)  better  cost control. As a result, EBITDA margins widened 1.8ppt to 22.0%.

-  Maintain NEUTRAL. We are keeping our earnings forecasts unchanged but raising our FV to MYR20.46 (from MYR17.47 previously) as we: i) roll over our FCFF model valuation horizon to FY14, ii) increase our terminal growth assumption to 2.5% (from 2.2%), and iii) increase our D/E ratio to 0.50  (from  0.33  previously),  which  reduces  our  WACC  to  6.8%  (from 7.1%). GUIN’s current D/E ratio is 0.50. The stock’s FY14 dividend yield is 3.5%, similar to that offered by Malaysian Government bonds. 

Source: RHB