Guinness Anchor’s 9MFY14 results came in slightly  below  our  and consensus  expectations.  We  cut  our  FY14/15  earnings  estimates  by 12.8%,  continuing  to  anticipate  a  challenging  2014  for  the  brewers,  as consumers  are  turning  more  cautious  in  their  spending  habits.  We maintain our SELL call with a lower FV of MYR12.80 (from MYR13.50) as we roll over our DCF-model valuation horizon to FY15.

Below  expectations.  Guinness  Anchor  (Guinness)’s 9MFY14 net profit of MYR151.3m (-17.9% y-o-y) came in slightly below our and consensus expectations,  coming  in  at  72%  and  71%  of  our  full-year  forecasts respectively. Its 3QFY14  revenue  decreased  to  MYR372.6m  (-15.8%  y-o-y; -25.4% q-o-q) due to softer market demand and the earlier timing of the Chinese New Year (CNY) sales vs last year. Meanwhile, its 3QFY14 net profit of MYR35.6m (-41.9% y-o-y; -46.2% q-o-q) declined, following an  increase  in  marketing  and  promotional  expenses  as  well  as  weaker sales during the quarter.

Outlook. We continue to foresee a challenging year for the local brewers as  we  believe  that  consumers  are  turning  more  cautious  with  their spending habits. Due to the lack of festivals between April and June, the company  usually  experiences  a  softer  4Q.  As  such, the company’s 4Q profits had in the past three years only made up approximately  15-16% of its full-year contributions.

Forecasts  and  risks.  Due  to  the  weaker  market  sentiment,  we  are cutting both our FY14 and FY15 earnings forecasts by 12.8% to take into account  weaker  demand  from  consumers,  given  the  implementation  of GST, along with the rationalisation of subsidies by the Government.

Investment case. We maintain our SELL call on Guinness Anchor with a  lower  FV  of  MYR12.80  (from  MYR13.50)  as  we  roll  over  our  DCF-model valuation horizon to FY15 (WACC: 8.5%, TG: 2.5%). This implies FY14/FY15  P/Es  of  21.1x/19.6x. We  continue  to  have  a  bearish  stance on this stock, given that its dividend yield has diminished and its rich P/E valuation is unjustifiable.

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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