Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD
Guinness Anchor Bhd
Aug 8, RM10.52
Maintain buy at target price of RM11.92: Guinness Anchor Bhd's FY11 ended June was driven by stronger sales, higher pricing and writebacks of costs. GAB reported a net profit of RM181.4 million (+18.8% year-on-year) on the back of a 9.6% y-o-y increase in revenue for FY11. The strong results were driven by two key factors: (i) robust sales volumes for GAB's brands thanks to events such as FIFA World Cup 2010 viewing parties, Arthur's Day, St Patrick's Day and Oktoberfest celebrations; and (ii) the raising of beer prices due to soaring raw material costs, particularly aluminium for the cans and malt. GAB increased prices by approximately 3% in May 2010, followed by a second hike of 3% to 4% in April 2011.
The price hikes, coupled with cost savings from the 7% y-o-y appreciation of the ringgit against US dollar, allowed GAB to preserve its margins. The company also booked in writebacks of over-accrued costs in FY11. Though the exact quantum was not disclosed, the writebacks boosted net profit by 'several million'.
However, despite the strong full-year results, 4QFY11 was weak as net profit declined by 40.6% quarter-on-quarter. This was, however, mainly due to the timing of marketing expenses as well as provisions for route to market restructuring. According to the management, the provisions were attributed to the restructuring of its distribution network, allowing products to be delivered directly to key international accounts instead of through dealers. Ultimately, the direct distribution will result in cost savings, although the management remained mum as to the quantum for both the provision and expected cost savings. The provisions are one-offs and will not recur.
Going forward, GAB's strong earnings performance is expected to continue, bolstered by its dominant market portfolio and effective cost management policies.
GAB commands about 60% of the market with a stronger presence in the higher margin on-trade market. The company has already hedged its raw materials for CY11, which will keep raw material costs stable for the current 1HFY12.
Higher input costs are expected from Jan 2012 onwards. According to the management, the six-month impact of higher raw materials prices in 2HFY12 will be around RM20 million, assuming no counter measures are taken. However, GAB should be able to mitigate the impact via higher selling prices from the April 2011 increase and increased operational efficiencies. ' Affin Investment Bank, Aug 8
This article appeared in The Edge Financial Daily, August 9, 2011.
Company Name: GUINNESS ANCHOR BHD
| Research House: AFFIN | Price Call: BUY | Target Price: 11.92 |
Guinness Anchor Bhd
Aug 8, RM10.52
Maintain buy at target price of RM11.92: Guinness Anchor Bhd's FY11 ended June was driven by stronger sales, higher pricing and writebacks of costs. GAB reported a net profit of RM181.4 million (+18.8% year-on-year) on the back of a 9.6% y-o-y increase in revenue for FY11. The strong results were driven by two key factors: (i) robust sales volumes for GAB's brands thanks to events such as FIFA World Cup 2010 viewing parties, Arthur's Day, St Patrick's Day and Oktoberfest celebrations; and (ii) the raising of beer prices due to soaring raw material costs, particularly aluminium for the cans and malt. GAB increased prices by approximately 3% in May 2010, followed by a second hike of 3% to 4% in April 2011.
The price hikes, coupled with cost savings from the 7% y-o-y appreciation of the ringgit against US dollar, allowed GAB to preserve its margins. The company also booked in writebacks of over-accrued costs in FY11. Though the exact quantum was not disclosed, the writebacks boosted net profit by 'several million'.
However, despite the strong full-year results, 4QFY11 was weak as net profit declined by 40.6% quarter-on-quarter. This was, however, mainly due to the timing of marketing expenses as well as provisions for route to market restructuring. According to the management, the provisions were attributed to the restructuring of its distribution network, allowing products to be delivered directly to key international accounts instead of through dealers. Ultimately, the direct distribution will result in cost savings, although the management remained mum as to the quantum for both the provision and expected cost savings. The provisions are one-offs and will not recur.
Going forward, GAB's strong earnings performance is expected to continue, bolstered by its dominant market portfolio and effective cost management policies.
GAB commands about 60% of the market with a stronger presence in the higher margin on-trade market. The company has already hedged its raw materials for CY11, which will keep raw material costs stable for the current 1HFY12.
Higher input costs are expected from Jan 2012 onwards. According to the management, the six-month impact of higher raw materials prices in 2HFY12 will be around RM20 million, assuming no counter measures are taken. However, GAB should be able to mitigate the impact via higher selling prices from the April 2011 increase and increased operational efficiencies. ' Affin Investment Bank, Aug 8
This article appeared in The Edge Financial Daily, August 9, 2011.
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