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StockStalk  |  JANUARY 29, 2016 1:16AM

GAB: Cheap entry price, dividends make good brew

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StockStalk instory imageFollowing a selloff from early December to mid-January, analysts say Guinness Anchor Bhd is trading at a discount of between 8.4% to 20%. Could the cheap entry price coupled with attractive dividends have investors raising their glasses to the brewery?

Business Model:

Guinness Anchor Bhd (GAB), established in Malaysia in 1989 following the merger of Guinness Malaysia Bhd and Malayan Breweries (Malaya) Sdn Bhd, is one of the two licensed breweries in Malaysia, with the other being Carlsberg Brewery (M) Bhd.

At its brewery located at Sungai Way, Selangor, GAB brews Tiger, Tiger Radler, Guinness, Heineken, Anchor Smooth, Anchor Strong, Kilkenny, and Anglia Shandy. It also produces the non-alcoholic malt drink Malta. GAB’s brand portfolio also includes imported brands Smirnoff Ice, Kirin Ichiban, Strongbow, and Paulaner.

For the first half of year of financial year 2016 (1H16), GAB recorded a  profit before tax of RM202 million. This was 16% higher than the RM174 million seen in the previous year’s corresponding period.

Revenue in 1H16 grew marginally by 1.7% to RM930 million from the RM913.9 million seen in 1H15. Net profit for the period increased 17.8% to RM154 million in 1H16 from the RM131 million recorded in 1H15.

For 1H16, GAB’s board has declared an single tier interim dividend of 20 sen and a special dividend of 30 sen per share bringing the total to 50 sen per share. The special dividend is to commemorate GAB’s 50th anniversary.

Shareholders and management assessment:

Last October, saw a significant change in GAB’s shareholding structure after Heineken NV bought out its partner Diageo Plc in two of their joint ventures, namely in Jamaica and Malaysia.

Prior to this change, GAB’s largest shareholder had been GAPL Pte Ltd, based in Singapore, with a 51% stake. GAPL Pte Ltd  was a joint-venture company between Heineken Asia Pacific Pte Ltd – owned by Heineken International BV – and Diageo Plc. Heineken’s buyout of Diageo makes it GAB’s largest shareholder with 51%. It is followed by Aberdeen Asset Management with an 8.27% stake.

A key concern that arose from this corporate exercise was that GAB would lose the Guinness stout brand, which is the brewery’s hallmark brand in Malaysia owned by Diageo.

However, at GAB’s recent 1H16 press conference managing director Hans Essaadi emphasised that Guinness will be a part of GAB’s offerings for a long time to come saying that the contract between them and Diageo is meant to last “forever”. He said that both Diageo and GAB were mutually dependent and benefited from their partnership.

Hans Essaadi, a Dutch national assumed the post on March 1, 2013. Having been with the Heineken group since 1991, he worked his way up to his current position having served in a number of the group’s offices in Europe, South America, Asia, and the Middle East.

Finance is under the direction of Atul Chhaparwal, who was been with the Diageo group for more than 13 years. Prior to his current post, he had served in several senior finance positions for the Diageo group’s offices in Asia.

Share performance:

GAB price chart 28012016

According to Bloomberg, GAB has been trading in a 52-week range of RM12.08 to RM14.98. The group has a market capitalisation of RM4.01 billion as at Jan 28, 2016. It has a one-year return rate of 14.96% and therefore has outperformed the FBM KLCI which has a return rate of -3.43%.

According to Reuters, the group has a beta coefficient of 1.18, and is therefore trading above the overall market volatility. A value of 1 reflects the average volatility of the stock market.

What analysts think: 

Analyst-calls-on-Guinness-Anchor-Bhd-280116Analyst reacted positively to GAB’s 1H16 results, with analysts from all four houses monitored by KINIBIZ (see table) upgrading the counter to ‘’buy following the release of the brewery’s data. According to Reuters, eight analysts monitor GAB and the consensus ‘positive with five having ‘’buy’ calls and three having ‘outperform’ calls.

Earnings forecast:

Guinness-Anchor-Bhd-earnings-summary-280116

StockStalk:

Analysts in general are positive on GAB’s recent financial performance and its outlook going forward. They have been particularly impressed by the GAB’s increased operational efficiency and continue to like brewery for its strong brand presence, healthy brand range and good corporate governance track record.

But what particularly makes GAB interesting at this juncture is that it is trading at a significant discount to its valuation. At the close on Jan 28, 2016, the brewery ended trading at RM13.30 and this is because of a small selloff in GAB shares from around Dec 7, 2015 to mid Jan, 2016.

However, based on GAB’s latest set of financial results, analysts monitored by KINIBIZ value the brewery at RM14.42 to RM16.00. This means they see GAB trading at a discount of between 8.4% to  20%, which may offer a good entry price for investors.

GAB can also be considered an attractive dividend stock. Affin Hwang Investments estimates dividend yields of between 5.9% to 7.9% over the next three years. While UOB Kay Hian said it expects the brewery to payout more than 90% of its earnings to shareholders, which translates into estimated yields of 6.1% to 6.5% from FY16 to FY18.

Therefore, factors such as the good entry price, healthy dividend payout and GAB’s strong presence in the market, are all factors investors looking to add a consumer stock to their portfolio should note.

Nonetheless, with the weak economic environment, GAB may see sales affected given that it is a discretionary consumer product.

However, management has sought to minimise the impact of this through having a wide range of brands ranging from value for money brands like Anchor, mid-level like core brands like Tiger and premium beers like Heineken and Kirin Ichiban.

A bigger risk to GAB’s earnings could come in the form of an excise duty hike. While there has not been a hike over the last decade, the current efforts to bolster government revenue might lead to one sooner rather than later. Although GAB will likely pass the increase directly to the consumer, earnings will still be threatened as some consumers might turn to contraband products.  

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Important Note and Disclaimer: This article should not be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.



 
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