Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD
Guinness Anchor Bhd
(Aug 9, RM10.06)
Maintain buy at RM10.52 with target price of RM13.58: Despite the flat revenue of -0.9% quarter-on-quarter, the earnings dive by 40.6% was largely due to provisions for the route to market restructuring. Essentially, the provisions arose from compensation paid to the company's dealers who were terminated as a result of GAB's distribution network rationalisation. The management said the provision is one-off and non-recurring. During the quarter, GAB also recognised some accelerated depreciation charges.
The management highlighted that the cost of ingredients (malt, for example) will remain stable through December (half of FY12) as these are under contract. However, this will increase in 2012 when contracts are renewed. Other things being equal, the management estimates the overall impact from cost increases at RM20 million for FY12. We believe this will be partially offset by the 4% price hike in April this year, which only affected its FY11 revenue in June. We believe that further mitigation of cost increases could also come from: (i) depreciation of the US dollar; and (ii) better cost efficiency from distribution network rationalisation.
GAB estimates its market share at 60%, outperforming the industry malt liquor market (MLM) volume. Volume from its main brand, Tiger, increased by 10% year-on-year (y-o-y) while Guinness rose by mid-single digits and Heineken in the mid-teens. Interestingly, the volume for Guinness stout from the on-trade modern channel (pubs and bars) rose 20%. We view this as an encouraging sign that Guinness is gaining popularity among younger drinkers, which we view as an under-tapped segment for the stout market. Kilkenny, which is sold via the on-trade modern channel, also showed a strong 50% volume jump.
We gather that geographically, sales in East Malaysia surged 20% y-o-y due to stricter government enforcement on smuggled beer sales, which make up about 80% of the market. Given the clampdown on beer smuggling, we believe that there is huge potential for GAB to increase sales in East Malaysia. The management added that it will be intensifying its focus there. ' OSK Research, Aug 9
This article appeared in The Edge Financial Daily, August 10, 2011.
Company Name: GUINNESS ANCHOR BHD
| Research House: OSK | Price Call: BUY | Target Price: 13.58 |
Guinness Anchor Bhd
(Aug 9, RM10.06)
Maintain buy at RM10.52 with target price of RM13.58: Despite the flat revenue of -0.9% quarter-on-quarter, the earnings dive by 40.6% was largely due to provisions for the route to market restructuring. Essentially, the provisions arose from compensation paid to the company's dealers who were terminated as a result of GAB's distribution network rationalisation. The management said the provision is one-off and non-recurring. During the quarter, GAB also recognised some accelerated depreciation charges.
The management highlighted that the cost of ingredients (malt, for example) will remain stable through December (half of FY12) as these are under contract. However, this will increase in 2012 when contracts are renewed. Other things being equal, the management estimates the overall impact from cost increases at RM20 million for FY12. We believe this will be partially offset by the 4% price hike in April this year, which only affected its FY11 revenue in June. We believe that further mitigation of cost increases could also come from: (i) depreciation of the US dollar; and (ii) better cost efficiency from distribution network rationalisation.
GAB estimates its market share at 60%, outperforming the industry malt liquor market (MLM) volume. Volume from its main brand, Tiger, increased by 10% year-on-year (y-o-y) while Guinness rose by mid-single digits and Heineken in the mid-teens. Interestingly, the volume for Guinness stout from the on-trade modern channel (pubs and bars) rose 20%. We view this as an encouraging sign that Guinness is gaining popularity among younger drinkers, which we view as an under-tapped segment for the stout market. Kilkenny, which is sold via the on-trade modern channel, also showed a strong 50% volume jump.
We gather that geographically, sales in East Malaysia surged 20% y-o-y due to stricter government enforcement on smuggled beer sales, which make up about 80% of the market. Given the clampdown on beer smuggling, we believe that there is huge potential for GAB to increase sales in East Malaysia. The management added that it will be intensifying its focus there. ' OSK Research, Aug 9
This article appeared in The Edge Financial Daily, August 10, 2011.
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