GUINNESS: BUY at RM7.79 with target price RM8.70

Guinness Anchor Bhd
(July 26, RM8)
Maintain buy at RM7.79 with target price RM8.70: The brewers have had an amazing year so far as volume climbed in the absence of an excise duty hike. Brewer of the Year — Guinness Anchor Bhd (GAB) — is poised to perform with outstanding FY2010 results soon. Apart from media sources, we also note the FIFA World Cup season boosted sales by 30% at its trade partners’ outlets, pubs and coffee shops.

GAB spent approximately RM10 million on promotions during the sporting season which we have imputed in our earnings assumptions. GAB’s flagship outlets had about 750 viewing parties which recorded approximately 90,000 people. However, it was reported that some outlets recorded a tremendous 320% increase in sales year-on-year.

As mentioned previously, we anticipate strong growth in sales during the FIFA World Cup season. However, given that the event took place in June/July, we believe the full impact will not be felt in its FY2010 results ended June. Note that although there were more games held in June, the popular ones that is the semifinals and finals were played in July.

In 4QFY2010, we estimate sales to record 18% to 20% growth quarter-on-quarter. This is reflected in our 20.6% upward revision in net profit for the quarter. On that note, we also raise our projection for FY2010 by 5.1% to RM163.9 million. We believe the FIFA World Cup impact on the malt liquor market volume was underrated.

A potential threat to our estimates would be a possible excise duty hike in the budget this year which brewers have escaped for four consecutive years. Given the recent hike in gaming tax, we would not be surprised to see an excise duty hike on malt liquor this year. An increase in excise duty may significantly cause volume to contract as seen in previous years. Rolling over our valuation, we derive a new target price for GAB at RM8.70 — based on discount dividend model (DDM) with an unchanged rate of return of 8.5%. Maintain buy on GAB. — TA Securities Holdings, July 26


This article appeared in The Edge Financial Daily, July 27, 2010.