GUIN’s  1QFY14  net  profit  of  MYR49.6m  (-12.7%  y-o-y)  was  within  our expectation but was below consensus. The  drop was primarily   due to a 16.9%  y-o-y  contraction in  revenue as sales volume  tapered off. GUIN continues to be a SELL  given that  its dividend yield appeal has faded and  its  rich  P/E  valuation  is  unjustifiable.  Our  FV  is  unchanged  at MYR15.19, based on FCFF valuation.

Within  expectations.  Guinness  Anchor  (GUIN)’s  1QFY14  net  profit  of MYR49.6m (-12.7% y-o-y, +48.3% q-o-q), was in line with our but below consensus  expectations,  representing  22%  and  20%  of  the  respective full-year forecasts. During the quarter under review, revenue declined by 16.9%  y-o-y  (-20.9%  q-o-q),  primarily  due  to  slower  sales  volume  and waning demand  for beer. Management attributed the drop to  a planned reduction  in  distributor  stocks  and  softer  consumer  spending.  These factors dragged down overall profitability on a y-o-y basis.

Outlook. Although the brewery sector was spared an excise duty hike in Budget  2014  for  eighth  consecutive  year  this  year,  we  think  the Government’s other measures  to rationalize its  subsidies  may also lead to weaker beer sales volume. In fact, the demand for beer had been on a decline for the past two reporting quarters of 4Q13 and 1Q14.  That said, the  tourism  sector  may  provide  a  buffer  to  the  domestic  beer  market during Visit Malaysia 2014 next year. 
Forecasts  and  risks.  No  changes  to  our  forecasts  as  GUIN’s  1Q14 results were in line with our expectations.  Our malt liquor market (MLM) volume growth assumption stays at 1%, as does our market share target of  60%  for  the  company.  The  key  risks  to  our  forecasts  include:  i) stronger sales volume, and ii) lower-than expected opex.
Valuation  and  recommendation.  We reiterate our SELL  call  on  GUIN at  a  FV  of  MYR15.19,  based  on  FCFF  valuation  (WACC:  7.8%,  TG: 2.5%) as we are of the view that  the stock’s  dividend yield appeal has waned  and its rich P/E valuation is unjustifiable.  Still,  the company  has strong  balance sheet  and  robust  operating  cash  flow,  as  well  as  good corporate governance in place.

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Company Profile
Guinness  Anchor  (GUIN)  is  involved  in  the  manufacture,  sale  and  distribution  of  beer.  Its  key  brands  are  Tiger,  Guinness  and Heineken.

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Source: RHB