· We reaffirm BUY on Guinness Anchor Bhd (GAB) with an unchanged DCF-based fair value of RM15.80/share.

· GAB kicked off its FY16 with a 1Q net profit of RM63mil. Annualised, this met our and market’s expectations, accounting for 28% of the respective full-year estimates.

· Similar to previous years, no dividend was declared this quarter. Our gross DPS forecasts of 74 sen for FY15F and 78 sen for FY16F are premised on a 95% payout ratio, translating into yields of 5.4%.

· Compared to the same period last year, GAB’s earnings had jumped by 43% although revenue was only higher by 2%. QoQ, its earnings had improved by 16% on the back of a 3% growth in revenue. The sequential improvement was expected as 4Q is seasonally the weakest for the group given the absence of any festivities.

· GAB’s strong bottom line growth vis-à-vis its top line can be attributed to higher sales (greater clampdown on contrabands since Jan 2015), better pricing, improved cost efficiency as well as optimised channel execution. As it is, its EBITDA margin had expanded by 2ppts QoQ and 3.5ppts YoY to 21%.

· Management also clarified that it has not made any provision for the bills of demand it received from the Royal Malaysian Customs in relation to the latter’s retrospective application of the new excise duty valuation method (effective Nov 2013 for GAB), as the group does not admit liability. Taking cue from its peer Carlsberg’s similar claim in Sept 2014, we believe this will be a drawnout negotiation/legal case.

· Earnings aside, we believe that GAB will maintain its proven innovation and premiumisation strategy moving forward. The group had recently introduced Tiger White - the wheat variant of its flagship Tiger brand - Strongbow Red Berries, Smirnoff Ice Black and a limited edition Spectre packaging for Heineken.

· The exit of Diageo as a shareholder in GAB following the acquisition of its stake by Heineken in early Oct 2015 is also not expected to adversely impact GAB’s portfolio of brands as Diageo will be engaging in long-term agreements with GAB for the brewing and distribution of their respective beer brands in Malaysia and Singapore.

· GAB is currently trading at FY15F-FY16F PEs of 19x, which is <1SD above its 5-year mean. Our fair value implies a forward PE of 21x. Although GAB’s yields are lower than its peer Carlsberg’s 6.6%, we still like GAB for its dominance in the malt liquor market, strong franchise value and increasingly attractive brand portfolio.

Source: AmeSecurities Research - 25 Nov 2015