AmWatch - Guinness Anchor : 1HFY15 earnings beat estimates BUY, 6 Feb 2015

STOCK FOCUS OF THE DAY

Guinness Anchor : 1HFY15 earnings beat estimates          BUY

We upgrade Guinness Anchor Bhd (GAB) from HOLD to BUY with a higher DCF-derived fair value of RM14.20/share, which implies an FY15F PE of 19x. Although GAB’s earnings are generally stronger in the 1H, its FY15 interim earnings came in well ahead of both our and consensus estimates (66% vs. the usual 57%).

GAB reported a 2QFY15 net profit of RM76mil – its highest quarterly earnings in the past eight years – to lift its 1HFY15 earnings to RM131mil. As expected, an interim dividend of 20 sen/share was also declared. Management attributes its sequentially stronger performance to higher MLM demand and better cost management. Cumulatively, GAB’s 1HFY15 revenue and earnings were higher by 11% and 13% YoY. The growth was mainly driven by the recovery in MLM volumes and its favourable pricing structure. We opine that the impact from its premiumisation strategy has yet to flow through given that its EBITDA margin remained flat at 21%.

At its briefing, management shared that its MLM volumes are on the rebound, having fallen by 6.6% in FY14. The 6% YoY growth in 1HFY15 was led by the better-than-expected sales of its three core brands, namely Tiger, Guinness and Heineken. Looking ahead, we expect its earnings momentum to remain intact in 3QFY15 due to:- (1) the seasonal effect of CNY, which occurs a month later this year (19 Feb 2015 vs. 31 Jan 2014); (2) pre-GST loading activities; and (3) the 3%-5% price hike effective 29 Dec 2014. That said, we caution that earnings could hit a soft patch in 4QFY15 before picking up again as we expect MLM volumes to decline amidst the uncertainties in the GST rollout. Cognisant of this, management had said that it will increase its brand activation activities to support its volumes ahead. Taking into account the aforementioned, we have thus raised GAB’s FY15F-FY17F earnings by 6%-9%.

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QUICK TAKE

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DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.