Guinness  Anchor’s  1HFY14  results were  within  our  but  slightly  below consensus estimates. We see 2014 as a challenging year for brewers as consumers/drinkers  are  becoming  more  cautious  with  their  spending habits.  We  continue  to  advocate  a  SELL  on  the  stock  with  an unchanged  FCFF-based  FV  of  MYR13.49.  Our  divestment  case  is primarily premised on its rich valuations and waning yield appeal.

• Within expectations.  Guinness  Anchor (Guinness)’s  1HFY14 net profit of  MYR115.7m  (-6% y-o-y) was within our/slightly below consensus fullyear  estimates,  at  55%/53%.  Historical  trends  show  that  its  1H bottomline typically contributes 56-58% of full-year earnings. In 2QFY14, revenue improved  16% y-o-y and 35% q-o-q thanks to  higher beer sales from  pre-2014  Budget  speculation  and  the  early  Chinese  New  Year (CNY)  festivities in 2014. However, its quarterly  earnings  did not grow in tandem  (-0.1%  y-o-y;  +33%  q-o-q)  following  an  increase  in  marketing activities to build brand equity.  Guinness declared an interim DPS of 20 sen (2QFY13: 20 sen).
• Outlook. We expect 2014 to be a challenging year for the local brewers,as consumers/drinkers  are  becoming  more cautious with their  spending habits. In our view,  beer consumption may experience a  5%  decline  this year  followed  by  a  1%  growth  in  2015,  as  we  believe  consumers  will have  grown  accustomed  to  the  higher  cost  of  living  expenses  and  will begin spending again on discretionary items. For  our  full report, please click on the following link: Brewery – Skipping a Beat.
• Forecasts  and  risks.  No  change  to  our  forecasts.  Key  risks  are:  i) stronger sales volume, and ii) lower-than expected opex.
• Divestment case.  We continue to advocate a SELL on  Guinness  with an unchanged FCFF-based FV of MYR13.49 (WACC: 8.5%, TG: 2.5%). This implies  FY14/15 P/Es of 19.4x/18.0x. We are bearish  on the stock,given its rich valuations and fading  dividend  yield appeal as the spread between the 10-year Malaysian Government bond yield has narrowed to 30-40bps from the historical10-year average of 280-290bps.

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SWOT Analysis

Company Profile

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

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Source: RHB