Guinness Anchor - Frothy dividends Hold

- We maintain our HOLD recommendation on Guinness Anchor Bhd (GAB), with an unchanged DCF-based fair value of RM14.50/share. GAB brewed a decent year which met both ours and consensus expectations. 

- Management has proposed a final single-tier interim dividend of 55sen/share, bringing FY12 DPS to 125sen (including a special 60 sen). Ex-date and entitlement date have been fixed for December 6 and 10, respectively.

- Whilst GAB is unlikely to propose any special dividend over the next 2-3 years, investors can look forward to management’s commitment to a more generous dividend payout ratio of 90%-95%, vs. 85%-90% previously. We have thus adjusted our DPS forecast upwards as premised on the higher payout ratio, translating into decent yields of 4%-5% per annum. 

- GAB’s turnover and net profit for 4Q fell 5% and 33%, respectively. However, the decline in sequential performance is anticipated, largely attributed to a sales volume lull from the absence of CNY festivity this quarter, despite the 2012 Euro Cup special event which took place June 8 to July 1. 

- On a YoY basis, net profit surged 14% on the back of revenue which grew 9% due to a 9% malt liquor volume boost. This was led mainly by GAB’s flagship mainstream Tiger beer which showed healthy growth, as well as Guinness and Heineken which more than make up for the reduction in duty-not-paid volumes (MDNP).   

- GAB appears to be reaping the fruit of its labour, based on FY12’s improved margins. Recall, the group had back in FY11 gradually phased out certain export and duty-free bound SKUs in favour of higher-profit yielding ones as part of its strategy for higher operational efficiencies. 

- No change to our earnings forecasts. We project net profit of RM221mil for FY13F, before growing 6% to RM234mil in FY14F, and another 6% to RM248mil in the following year. In the immediate term, 1QFY13F earnings will be underpinned by the group’s annual Arthur’s Day celebration (end-Sept). 

- GAB’s group’s strong brand equity and dominant MLM market share of 55% are expected to provide a strong support to the group’s generous dividend policy. Key risks to our earnings forecasts are:- 1) Higher-than-expected raw input costs, notably price of malting barley; 2) Hike in alcohol excise duty from RM7.40/litre and; 3) Lower-thanexpected 2012-13 projected industry MLM growth of 5%-6%.  

Source: AmeSecurities