We recently brought nine fund managers and buy-side analysts to visit Guinness Anchor (GAB)’s 47-year-old brewery in Sungei Way, Selangor. The level of automation at the plant impressed us, as our group easily outnumbered the number of workers on the factory floor. Despite producing as many as 1.2m cans of beer a day, the brewery still appears clean and well-organised. We continue to like GAB’s strong beer portfolio, solid track record and good corporategovernance, as well as the beer industry’s steadily-growing volume. Maintain BUY, with FV RM17.47.
Almost 50 years old. GAB’s brewery in Sungei Way, Selangor commenced operations 47 years ago in 1965. It was the first facility outside its home country Ireland to brew Guinness Stout. Today, it manufactures all of GAB’s key brands - Guinness, Tiger, Heineken, Anchor, Kilkenny, Malta and Anglia Shandy - except Paulaner and Strongbow, which are respectively imported from Germany and England. GAB’s brew house has a theoretical ultimate capacity of up to 300m litres per annum, although the facility actually has different utilisation rates throughout the year. The canning line, for example, is completely maximised right before the Chinese New Year festive season.
Not labour intensive at all. Most of us were amazed by the level of automation in the plant. We saw, at the most, five factory staff inside the brewery, with the majority of them working at the packaging line. The machinery is monitored by a central controlling system (which we were told comprises multiple screens displaying charts, figures, graphs) outside the brewery to ensure operating efficiency and to address mechanical breakdowns. During the visit, the plant came across as well organized and seemingly tidier than other breweries we have seen. Some parts of the automated process, which involve simple engineering such as the alignment of empty glass bottles for filling, actually carried out the designated task smoothly.
Our preferred brewer. Malaysian malt liquor market (MLM) volumes have increased at a 6.7% CAGR since 2007, when the government put beer excise duty hikes on hold. GAB has historically outperformed its peer to strengthen its market share in a growing industry. Although Carlsberg is now a credible threat to GAB’s dominant position by introducing new beers and becoming a multi-brand company, the latter still has a strong beer portfolio and boasts of double-digit volume growth for Guinness and Heineken, a solid earnings track record and good corporate governance. Maintain BUY, with FV of RM17.47, based on our FCFF model (WACC: 7.1%, terminal growth: 2.2%).
Almost 50 years old. GAB’s brewery in Sungei Way, Selangor commenced operations 47 years ago in 1965. It was the first facility outside its home country Ireland to brew Guinness Stout. Today, it manufactures all of GAB’s key brands - Guinness, Tiger, Heineken, Anchor, Kilkenny, Malta and Anglia Shandy - except Paulaner and Strongbow, which are respectively imported from Germany and England. GAB’s brew house has a theoretical ultimate capacity of up to 300m litres per annum, although the facility actually has different utilisation rates throughout the year. The canning line, for example, is completely maximised right before the Chinese New Year festive season.
Not labour intensive at all. Most of us were amazed by the level of automation in the plant. We saw, at the most, five factory staff inside the brewery, with the majority of them working at the packaging line. The machinery is monitored by a central controlling system (which we were told comprises multiple screens displaying charts, figures, graphs) outside the brewery to ensure operating efficiency and to address mechanical breakdowns. During the visit, the plant came across as well organized and seemingly tidier than other breweries we have seen. Some parts of the automated process, which involve simple engineering such as the alignment of empty glass bottles for filling, actually carried out the designated task smoothly.
Our preferred brewer. Malaysian malt liquor market (MLM) volumes have increased at a 6.7% CAGR since 2007, when the government put beer excise duty hikes on hold. GAB has historically outperformed its peer to strengthen its market share in a growing industry. Although Carlsberg is now a credible threat to GAB’s dominant position by introducing new beers and becoming a multi-brand company, the latter still has a strong beer portfolio and boasts of double-digit volume growth for Guinness and Heineken, a solid earnings track record and good corporate governance. Maintain BUY, with FV of RM17.47, based on our FCFF model (WACC: 7.1%, terminal growth: 2.2%).
FROM BREWING TO BOTTLING
Malts and hops. The beer-brewing process begins with malted barley, where malts are crushed, mixed with water and cooked at 68 ºC. After filtration to remove barley residuals (which is used for cattle feed), hops are added to the solution and the combination boiled together for one hour. Hops, the female flower clusters of a plant, are the reason behind a beer’s bitterness and its alpha and beta acids serve as the unique taste component, while its essential oils give beer its aroma. Stout, in general, is thrice as bitter as lager due to the usage of roasted barley and the amount of hops included. After being boiled, the solution is further clarified. Our helpful brewery tour guide believes that 40% of a beer’s flavour is derived from the malted barley.
A special yeast. Up to this point in the brewing process, the solution is hot. A cooler then lowers the temperature to 12ºC-14ºC, and yeast is added to begin the fermentation process. Fermentation lasts two to three weeks; GAB’s fermentation vessel fills up to 300,000 litres of in-process beer at a time. The company sources for 1kg of yeast from the Netherlands once every two to three months, and propagates the yeast locally. After that, the beer is stored in cold temperatures for a few days before being filtered to remove residual yeasts and proteins, resulting in a clearer, brighter beer.
The final package. The completed beer then undergoes a 20-parameter testing process (for colour, taste, bitterness, body etc) to ensure that it is within specifications before proceeding to the packaging line. GAB is able to fill 74,000 cans per hour to produce 1.2m cans of beer a day. The kegging line, meanwhile, fills at a rate of 350 barrels per hour. Glass bottles are generally recycled and typically last for six to 10 cycles. Malaysian customs wait at the end of the production line to stamp a duty on the finished beer, charging the company an average of RM1.2m in beer excise duties each day.
Source: OSK
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