Guinness Anchor - Glass half full at half time HOLD

Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD

Research House: AMMB

Price Call: HOLD

Target Price: 13.55

' Guinness Anchor Bhd (Guinness) posted a higher net profitof RM68mil for 2Q, bringing the total to RM121mil for 1H. Annualised, interimnet profit is 28% above our forecast and 24% above consensus. We deem theresults at half time to be a tad above expectations, given  an anticipated strong 2HFY12F on the back ofthe UEFA European Football Championship special world event from 8 June -1July.

' Consequently, our FY12F-14F earnings forecasts havebeentweaked upwards by 3%-8%. We now project net profit to grow 13% YoY to RM205milfor FY12F. 

' Our earnings model takes into account a marginal margin compression due to  higher costs of raw materials, packaging anddistribution, which are due to kick-in over the next few quarters. As anindication, packaging costs and price of malting barley for CY12 are circa30%-40% higher YoY.  

' Guiness's turnover and net profit for 1HFY12 surged 16% and17% on a YoY basis. This was attributed mainly to:- 1) Increased beer volumesamid successful events (Tiger Street Football, Arthur's Day and HeinekenThirst), and 2) Enhancement of the route-to-market strategy.

' Guinness Stout remains as the star performer, while Heinekencontinues to chalk up a double-digit growth.  Tiger, the group's main earnings driver, isestimated to have maintained market leadership within the mainstream maltliquor segment.

' On a sequential basis, 2Q turnover and net profit was up 5%and 19%, respectively. Apart from this quarter being heavily seasonal due toChristmas and the New Year celebrations, bottom line growth was boosted by a2.3ppts improvement in EBITDA margin from lower costs of goods sold. 

' Management declared a single-tier interim dividend of 10 sen/sharefor this quarter, similar to previous years. Including a special interimdividend of 60 sen/share declared in December 2011, dividends total 70sen/share for 1HFY12. No change to our dividend forecast of 117sen/share forFY12F. 

' No change to our HOLD recommendation on Guinness with aDCF-based fair value of RM13.55/share (WACC:8.9%).  At the current share price, the stock stilloffers a decent 5% dividend yield, premised on an established dividend payoutof 90% per annum.   

Source: Amesecurities