By Xavier Kong
Several analysts from various research houses are in agreement that Guinness Anchor Bhd’s (GAB) nett profit of RM153.9 million for the first half of the group’s 2016 financial year has exceeded their expectations.
Analysts see this, along with the announcement of a special dividend of 30 sen per share on top of the interim dividend of 20 sen per share for a total dividend of 50 sen per share, as positive.
“The group’s bottom line growth was fuelled by effective marketing activities, improved cost efficiencies for its core operations, better pricing and intensified efforts to control the proliferation of contraband beers,” noted CIMB IB, who maintained its “add” call on GAB while increasing its target price to RM16 from a previous RM15.20.
CIMB IB also noted that the group now offers decent dividend yields of between 6% and 8% for financial year 2016 (FY16) to FY18, which the research house noted “offers investors a safe haven in the volatile market”.
“We are buoyed by the impressive results particularly considering it was achieved on the back of the persistent weak local consumer sentiment. We think the growth was driven by successful new product launches including Tiger White, Smirnoff Ice Black, Tiger Radler Mandarin Orange and Strongbow Red Berries, as well as the enforcement to tackle contraband beers by the authorities,” said Kenanga IB, who maintained its “outperform” call on GAB, as well as raising its target price to RM16.36 from a previous RM15.36.
Kenanga IB expects the healthy growth momentum to be sustained with more advertising and promotional activities to be rolled out in conjunction with the Chinese New Year festival to stimulate sentiments.
However, the research house also added that the high margin will not be sustainable, as the advertising and promotional activities will be recognised in the subsequent quarters.
UOB Kay Hian (UOBKH), which upgraded GAB to a “buy” call, as well as raising its target price to RM15.50 from RM15, noted that GAB remains a market leader in the malt liquor market segment with a 62% market share.
However, UOBKH also expressed concern that there would be an excise duty hike in the first half of the 2016 calendar year, following the steep excise duty hike of almost 40% in the tobacco sector.
“We expect the hike to be moderate and not as steep as that for the tobacco sector, since the existing duty is already the second-highest in the world, after Norway. In the event of a moderate hike, we believe it will have minimal impact on GAB’s earnings as we believe GAB can offset or more than offset the increase in costs through a price hike of its products (given that this is after the commencement period of the Anti-Profiteering Act for the latter),” said UOBKH.
In the matter of the bills of demand that have been served to GAB amounting to RM56.3 million by the Royal Malaysian Customs, the group maintains its stand that a retrospective application of the new excise duty valuation method is unjustifiable.
“At present, we understand that discussions are ongoing between both parties to resolve the dispute fairly. Accordingly, no provisions were recognised,” said TA Securities, which had upgraded GAB to a “buy” call, as well as raising its target price to RM15.95.
AmResearch noted that it continues to like GAB for its dominance in the malt liquor market, its strong franchise value, and its increasingly attractive brand portfolio, which remains unchanged despite the change of hands from Diageo to Heineken.
“Its share price will also be supported by its defensive position and high yields. The stock is presently trading at an undemanding calendar year 2016 price-to-earnings ratio of 15 times versus our implied price-to-earnings ratio of 19 times,” said AmResearch, which maintained its “buy” call and raised its fair value to RM16 from a previous RM15.80.
At the end of the trading day, GAB’s shares were last traded at RM13.46, up 38 sen.
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