Guinness Anchor - A smooth 3Q HOLD

- Guinness Anchor Berhad (GAB) reported a decent 3Q result, bringing 9MFY12 earnings to RM173mil. Results met both our and market expectations, accounting for 84% and 85% of our respective full year forecasts.

- GAB recorded a 22% decline in both 3Q revenue and net profit on a sequential basis. However, this should not be a surprise as the seasonally weaker earnings is mainly attributed to a fall in beer volumes as a result of timing of Chinese New Year festivity.

- For the nine months period, net profit grew 13% mainly due to higher revenue which rose 12% YoY. But normalised bottom line growth would have been higher at 23% after stripping off an estimated EI of RM12mil  from reversal of costs over-accrued in FY11. 

- The improved performance this year was largely attributed to a more favourable brand mix and better management of overhead expenses. 

- The group continues to see healthy beer sales volume growth in key pillar brands as led by Guinness and Heineken. Tiger, the group’s main earnings driver is estimated to maintain its market leadership within the mainstream malt liquor segment (MLM).

- Similar to previous years, no dividend was declared for this quarter. Management declared total dividends of 70sen/share in the preceding quarter, comprising a single tier interim of 10 sen and a special interim of 60 sen.

- We maintain our MLM growth forecast at 5%-6% for 2012-2013 as underpinned by decent organic industry growth and volume boost from special 2012 Euro Cup event. In the immediate term, we expect a step-up in beer sales volume along with intensified A&P leading to match playoffs. Euro Cup will last for 24 days from 8 June to 1 July. 

- More importantly, we expect largely stable margins  for brewers moving forward given flattish raw ingredient prices, notably malting barley and hops. As it is, brewers including GAB have already bought forward its raw ingredient requirements for 2012.

- No change to our HOLD recommendation on GAB with a DCF-based fair value of RM13.55/share. At current share price level, the stock still offers attractive dividend yields of 5% per annum, premised on its established dividend payout of 90%.   

Source: AmeSecurities