Guinness Anchor Berhad - How long will the government's efforts against contraband beer last?

19/4/2015 – The management of Guinness Anchor is confident of delivering a satisfactory performance for FY15.

It expects the external environment to be challenging in H2FY15 due to spending cuts by the government and the uncertainties surrounding the implementation of the Goods and Services Tax (GST) in April.

But it has lined up commercial initiatives for the remaining six months of its financial year and it thinks it is well prepared for the GST implementation.

Guinness Anchor Bhd makes, sells and distributes beer.

Its key brands are Tiger, Guinness and Heineken.

The company just announced earnings for Q2FY15:

Revenue: +4% to RM 520.8 mln
Profit: +15% to RM 76.1 mln
Cash flow from operations: RM 93.8 mln vs RM 54.1 mln
Dividend: 20 sen per share vs 20 sen per share

The management of Guinness Anchor said the growth in revenue was mainly driven by favourable pricing and brand mix.

New brand launches in 2014 such as Kirin Ichiban, Smirnoff Ice, Affligem and three new Strongbow flavours also contributed to higher volume.

The rise in profit was mainly driven by an increase in revenue and improved cost efficiencies and working capital management.

In addition, there was also lower commercial spend in the quarter under review as a result of the later timing of Chinese New Year in 2015 (February in 2015 instead of January in 2014).

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. How long will the government's efforts against contraband beer last?

Guinness Anchor said its H1 revenue increased 11% to RM 913.9 mln, due to volume growth, favourable pricing and brand mix.

It added that it continues to reap the benefit of measures taken against contraband beers by the Royal Malaysian Customs and various enforcement agencies.

TA Securities said it is "positive on the government’s efforts to bring down contraband beer sales in the market."

It thinks it will be a win-win situation for the beer industry and also the welfare of Malaysia as a whole.

But does Guinness Anchor think these efforts will be constant, or will they fade away after a while?

With a difficult year ahead where consumer sentiment is going to be low and made worse by the introduction of the GST, Guinness Anchor and its competitor Carlsberg will appreciate any kind of improved enforcement on contraband beers.

How much confidence does it have in the consistency of the enforcement?

Question

2. How much is it paying a year for new excise duty valuation by Malaysian Customs?

Unlike Carlsberg Malaysia, which is currently contesting a bill of demand by Malaysian Customs, Guinness Anchor is paying the higher excise duty valuation of locally-manufactured beers.

But absorbing the higher payments has resulted in its EBIT being reduced by RM 18 mln in FY14.

How much is it paying a year for the new excise duty valuation by Malaysian Customs?

(Read the full story to get all 8 questions)

We have invited the company (general.enquiry@gab.com.my) to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.

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