A 60 percent market share and record share prices are nice problems to have for Guinness Anchor whose growth may be limited by competitive pressures. But MD Hans Essaadi is not taking things sitting down and has plans to counter both a resurgent Carlsberg and an ever-changing beer and alcoholic beverages market.
It’s a sweltering hot day, Hans Essaadi, managing director of Guinness Anchor Bhd looks like he could use a cold beer as he sits perched on a barstool at The Tavern, the watering hole owned and run by the brewer, located in its premises in Petaling Jaya.
The Hollander has only been here in Malaysia for four months. Essaadi a veteran of more than 20 years with Dutch brewing giant Heineken NV, spent time in Germany, Austria, Russia, the Caribbean and the Middle East, before his posting to Malaysia.
While Essaadi entertains KiniBiz and goes on about the merits of GAB, the company’s stock is soaring, trading at a record high, testing the RM21 band, which translates to a market capitalisation in excess of RM6 billion. Rival Carlsberg Brewery (M) Bhd’s market value meanwhile stands at RM4.9 billion.
“Malaysia is great… GAB is (doing) great,” an upbeat Essaadi said.
GAB is the market leader in Malaysia with about 60 percent market share, with its diverse portfolio of brands, namely Heineken, Tiger, Anchor, Kilkenny Irish Beer, Strongbow and German Paulaner. Since trumping its only competitor Carlsberg in 2006, GAB has maintained its pole position.
“While Carlsberg had Carlsberg Green, GAB started working from a very strong premium portfolio, tapping into an evolving generation.
“Now we are talking about how to take GAB to the next level. You cannot be complacent. It’s about being one step ahead,” he said.
After losing its lead in market share, Carlsberg has since diversified its portfolio, and has been looking good with brands such as Kronenburg and Asahi under its belt. See earlier stories on Carlsberg here and here.
While Essaadi is tight lipped about GAB’s plans, he does say that there will be changes to the line-up, or offerings within the next 12 months, including additional beers that GAB brews.
He declines to say anything more. “In twelve months we can sit and talk about the changes at GAB,” he said.
When pressed Essaadi said, “We focus on trends… That’s what excites consumers. If ale was a trend, we would look into it. Mexican-American beer is looking like a trend now, we need to look into what can complement us but in a feasible way,” he added.
Interestingly enough Heineken’s subsidiary Cervecería Cuauhtémoc-Moctezuma is among the major brewers in Mexico. The Monterrey, Mexico based brewery produces Sol, Dos Equis, Tecate, Guadalajara, Navojoa, Toluca, Orizaba, Bohemia, Carta Blanca, Noche Buena and Indio brands among others.
Many don’t know it but the relationship between GAB and Heineken is a long standing one, since 1931, when the Dutch company helped set up Malayan Breweries, which has since morphed into Singapore’s Asia Pacific Breweries Ltd (APB).
APB has 50 percent in GAPL Pte Ltd which in turn has 51 percent of GAB. APB meanwhile is about 95 percent controlled by Heineken.
GAB can latch on to Heineken’s know how, when the need arises.
“With more affluent consumers there is the need to be more creative, this is where we can tap into Heineken’s expertise,” Essaadi explained.
Essaadi’s strength as well, lies in his ability to sell. When he was stationed in Germany in the mid 90’s he was tasked with selling Heineken to the Germans. In Germany there are more than 1,200 breweries and it is the largest beer market in Europe.
“It was like selling ice to the Eskimos,” he reminisces.
The analysts take
Essaadi seems bullish on GAB’s prospects, and sheds some light on the direction GAB may take, in engaging with its next generation of consumers.
“We generally try to excite the consumers. We focus on big events, GAB has a fantastic track record of organising big events—Arthur’s Day and St. Patricks Day, Tiger FC and the Asian Music Festival.
“These days young consumers are more on the social media. It’s good to have a lot of fans but we have to engage with the fans. We have to do something about the large number of fans we have,” Essaadi said.
However, most analysts are lukewarm on GAB, largely due to the recent surge in the company’s share price. Some research outfits such as TA Securities and Alliance Research have sell calls on GAB’s stock.
For its nine months ended March this year, GAB posted net profits of RM184.14 million on the back of RM1.26 billion in revenue. Earnings per share for the nine months in review was 60.6 sen.
In contrast to the corresponding period a year ago, revenue was largely flat (down 1.6 percent) while net profit strengthened 6.7 percent.
Alliance Research noted that the lower revenue for 9MFY2013 was quite a surprise as it implies potential loss of market share or weaker malt liquor market volume growth, given that the group’s average selling price has improved year on year due to favourable product mix.
As at end March this year, GAB had cash and bank balances of RM77.27 million, while on the other side of the balance sheet the company had long term debt commitments of RM150 million, and short term borrowings of RM50 million.
“We keep GAB as a hold but raise our DCF-based target price to RM19.50 after imputing a higher terminal growth of two percent vs. a conservative one percent previously. This equates to a still decent CY2014 net dividend yield of 4.2 percent,” Maybank Investment Bank said in a report recently.
Maybank IB also highlights that GAB, unlike its competitor Carlsberg, is reliant solely on the Malaysian market. Carlsberg has businesses in Singapore and Sri Lanka as well under its purview.
For its year ended June Maybank IB forecasts GAB registering net profits of RM226.1 million from RM1.74 billion in revenue for FY2013.
Alliance Research is cautious on GAB’s outlook anticipating slower consumption growth in 2H2013 due to the absence of major consumption-driven events, as well as potential trend reversal for both yield, investors’ risk appetite going forward, and the possibility of a potential first excise duty hike in eight years in the upcoming Budget 2014.
RHB Research meanwhile, highlighted that GAB’s EBITDA margins widened 1.8 percentage points to 22 percent, and maintained its Neutral call on GAB’s stock, and raised the fair value of GAB’s shares to RM20.46 from RM17.47 previously.
With the strengthening share price RHB Research said that GAB’s FY14 dividend yield is at 3.5 percent, similar to that offered by Malaysian Government bonds.
It’s been sometime since analysts’ have viewed GAB negatively. Hence, Essaadi’s moves are likely to be watched closely by analysts, the investing fraternity and most of all rival Carlsberg, which is looking to wrest back its pole position.
Tomorrow: Question and answer session with Hans Essaadi