RAM Ratings reaffirms Guinness Anchor’s ratings

Published on 19 November 2013

RAM Ratings has taken the following rating actions in respect of Guinness Anchor Berhad’s (GAB or the Group) corporate credit ratings:

Rating Type	Rating Action	Ratings
ASEAN Ratings	Reaffirmed	seaAAA/Stable/seaP1
Global Ratings	Reaffirmed	gA2/Stable/gP1

Concurrently, we reaffirm the AAA/Stable/P1 ratings of GAB’s RM500 million Commercial Papers/Medium-Term Notes Programme (2011/2018).

GAB continues to lead the malt liquor market (MLM), with a 58.2% share based on sales for the year end FY Jun 2013, supported by its strong brand equity, continuous marketing efforts and extensive distribution network. On the back of a better sales volume in FY Jun 2013, the Group’s flagship Tiger remains the second most popular beer brand in Malaysia. Meanwhile, its Guinness and Heineken continue to be the most popular brands of stout and premium beer in the country. However, we note Heineken’s market share dipped y-o-y due to increased competition from Carlsberg Brewery Malaysia Berhad’s super premium brands and a 12.3% rise in price.

GAB produced a strong set of results for FY Jun 2013, marking its twelfth consecutive year of growth in terms of revenue and profitability. Despite a marginal 0.2% dip in total sales volume, the Group’s revenue was lifted 3.2% y-o-y to RM1.68 billion in FY Jun 2013, driven by higher selling prices. This, coupled with wider margins as a result of greater operational efficiencies, led to GAB’s operating profit before depreciation, interest and tax (OPBDIT) increasing 6.5% to RM322.86 million and its OPBDIT margin expanding from 18.67% to 19.26% in fiscal 2013.

In line with its sturdy earnings, the Group’s cashflow is also robust. GAB generated funds from operations (FFO) of RM244.86 million and an operating cashflow (OCF) of RM232.63 million in FY Jun 2013 (FY Jun 2012: RM236.11 million and RM184.80 million). This translated into superior FFO and OCF debt cover ratios of 1.63 and 1.55 times, respectively. “Going forward, we expect GAB’s cashflow-protection metrics to remain impressive, with its FFO and OCF debt cover ratios maintained at above 1 time. That said, we note the exceptionally high dividend payout,” notes Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. Despite a drop in debt, GAB’s net gearing ratio deteriorated from 0.10 to 0.22 times as a result of diminished cash retention - primarily to enable a hefty RM226.57 million dividend payout in FY Jun 2013 (FY Jun 2012: RM344.39 million). “Nevertheless, the Group’s balance sheet remains in line with our expectations and is envisaged to remain conservative,” add Lim.

GAB’s credit profile is, nonetheless, affected by several challenges in the local MLM. While the industry has been spared tax hikes for the last 8 years, it remains vulnerable to potential future increases and the threat of illicit alcohol. However, we do note that in the recently tabled Budget 2014, there was no hike announced. The Group is also vulnerable to fluctuating input costs and exposure to regulatory risk, given the sensitive nature of the alcohol industry in Malaysia, a predominantly Muslim populated country.

Media contact
Sahil R Kamani
(603) 7628 1084
sahil@ram.com.my