A Brief Look at Guinness Anchor Berhad (Malaysia)

2006 EPS 42.4 DPS 30.2

2007 EPS 37.3 DPS 32.9

2008 EPS 41.7 DPS 36.4

2009 EPS 47.0 DPS 41.0

2010 EPS 50.54 DPS 45.0

1Q11 EPS 12.81 DPS -

Price RM 11.00 (13.1.2011)

Estimated EPS 2011 = 4*12.81 = 51.24

Projected PE for 2011 = 21.5 x

Historical

5 Yr 

PE 12.2 - 16.0

DY 7.0% - 5.3%

10 Yr

PE 12.9 - 16.6

DY 7.5% - 5.8%

One Year Performance of Selected Stocks in KLSE (1)

Guinness

Date announced 3-Nov-10
Quarter 30/09/2010 Qtr 1
FYE 30/06/2011

STOCK GUINNESS
C0DE  3255 

Price $ 8.83 Curr. PE (ttm-Eps) 16.20 Curr. DY 5.10%
LFY Div 45.00 DPO ratio 89%
ROE 32.2% PBT Margin 14.1% PAT Margin 10.6%

Rec. qRev 366631 q-q % chg 19% y-y% chq 22%
Rec qPbt 51638 q-q % chg 8% y-y% chq 44%
Rec. qEps 12.81 q-q % chg 8% y-y% chq 45%
ttm-Eps 54.50 q-q % chg 8% y-y% chq 36%

Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5% Avg.H PE 14.00 Avg. L PE 12.00
Forecast High Pr 9.74 Forecast Low Pr 6.80 Recent Severe Low Pr 6.80
Current price is at Upper 1/3 of valuation zone.

RISK: Upside 31% Downside 69%
One Year Appreciation Potential 2% Avg. yield 7%
Avg. Total Annual Potential Return (over next 5 years) 9%

CPE/SPE 1.25 P/NTA 5.22 NTA 1.69 SPE 13.00 Rational Pr 7.09



Decision:
Already Owned: Buy Hold Sell Filed Review (future acq): Filed Discard: Filed
Guide: Valuation zones Lower 1/3 Buy Mid. 1/3 Maybe Upper 1/3 Sell

Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr

Guinness

Date Announced 4th Aug 2010
Quarter 30/06/2010 Qtr 4
FYE 30/06/2010

STOCK  GUINESS 
C0DE  3255

Price $ 8.68
Curr. PE (ttm-Eps) 17.17
Curr. DY 5.18%

Rec. qRev 308713 q-q % chg -17% y-y% chq 12%
Rec qPbt 48010 q-q % chg -23% y-y% chq 26%
Rec. qEps 11.81 q-q % chg -23% y-y% chq 30%
ttm-Eps 50.54 q-q % chg 6% y-y% chq 8%

Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5%
Avg.H PE 14.00
Avg. L PE 12.00

Current price is at Upper 1/3 of valuation zone.
RISK: Upside 16% Downside 84%
One Year Appreciation Potential 1% Avg. yield 7%
Avg. Total Annual Potential Return over next 5 years 7%

CPE/SPE 1.32
P/NTA 5.56
Sig. PE 13
Rational Pr 6.57


Decision: 
Already Owned:  Buy Hold Sell Filed
Review (future acq):  Filed
Discard:  Filed
Guide: Valuation zones:   Lower 1/3 Buy Mid. 1/3 Maybe Upper 1/3 Sell

Aim: 
To Buy a bargain:. Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss:  Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years:   Seek for ANNUAL POTENTIAL RETURN of > 15%.
To Prevent Loss:   Sell immediately when fundamentals deteriorate
To Maximise Gain:    Sell and Replace when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr

Next up: Tax hike for brewers?

Written by Insider Asia
Friday, 08 October 2010 12:16

Now that two of the three so-called “sin sectors”, cigarettes and gaming, have seen taxes raised this year, expectations are high that the brewers are next in line.

Earlier in June 2010, gaming companies saw pool-betting duty raised from 6% to 8%. The latest round of tax increase for cigarette manufacturers, of three sen per stick, was announced earlier this week ahead of Budget 2011, which is to be presented on Oct 15.

Of the three sectors, cigarette manufacturers have been the worst affected, having been slapped with tax hikes every year for the past eight years. By comparison, brewers are “luckier” — they have been spared of any tax increase since 2005.

Back then, the government raised excise duty by 23% to RM7.40 per litre and introduced a new 15% Ad Valorem duty payment on the ex-brewery price for beer products. But at the same time, it also reduced sales tax to 5% of the ex-factory invoice price on all products sold. The net tax increase was thought to be around 8%-9%.

As such, many expect the time is ripe for fresh tax hikes — by as much as 10% — in Budget 2011. The government has hinted as much.
On the other hand, brewers contend that beer taxes in the country are already one of the highest in the world, second only to Norway. Government tax payments amounted to over 48% of Carlsberg Brewery’s revenue last year.

Like the cigarette industry, it is feared that further tax hikes — and the resulting higher selling prices — will fuel smuggling. Smuggled or illicit beer is estimated to make up roughly 20% of the local beer market. Volume sales of the duty-paid malt liquor market dipped in 2005-2006 after the last round of tax hike before recovering in 2007-2008. Industry volume sales are estimated to have declined by roughly 2% in 2009, impacted by the global downturn, but are expected to grow in the single digit this year.

Higher taxes and prices could send volume sales growth back into negative territory — affecting the earnings of the two local breweries, Guinness Anchor and Carlsberg.

Guinness fared better over past few years
Of the two, Guinness appears to have weathered the intensely competitive operating environment better. The company charted steady growth in sales and profits over the past decade, thanks, in part, to its success in gaining a steadily larger slice of the domestic market. At present, its market share is estimated at roughly 57%, up from about 45% back in 2001.

Sales grew at a compounded rate of more than 8% annually, from RM670 million in FYJune01 to RM1.36 billion in FY10. Over the same period, net profit increased at an even faster pace of   11.2% per annum, from RM58.7 million to RM152.7 million in the latest financial year.

By comparison, Carlsberg’s earnings growth has been patchier. Whilst sales increased at a compounded annual rate of about 2.3% between 2000 and 2009, net profit dipped to RM75.9 million last year from RM110 million in 2000. Indeed, Guinness’ shares had outperformed Carlsberg over the past five years. Shares of Guinness are currently trading at RM8.46, compared to RM5.75 at the start of 2006 whilst Carlsberg’s shares are hovering around the same levels as they were five years ago.

Expansion boost for Carlsberg
Nonetheless, Carlsberg’s prospects appear to be looking up. The company has been on an expansion trail, investing in Luen Heng F&B in November 2008 and Carlsberg Singapore in October 2009. The acquisitions have widened both its product range and market base — and appear to be paying dividends.

Carlsberg reported strong earnings in 1H10, boosted by contributions from Carlsberg Singapore. The latter accounted for RM28.7 million of its pre-tax earnings of RM69 million in the first six months of the year, and is well on track to meet the company’s estimated net profit contribution of RM37 million for the full year. At this pace, we estimate Carlsberg’s 2010 net profits to be sharply higher from last year’s RM75.9 million. In addition to operational synergies, the expansion in Carlsberg’s customer base is likely to temper the negative impact of a tax hike in the domestic market.

Carlsberg’s new ventures — Carlsberg Singapore was acquired for RM370 million — have come at the expense of dividends. The company lowered its dividend payout in 2008-2009 to 35% and 51% of profits, respectively, compared with the average payout of 108% in the preceding six years. The company has net debt of RM37.7 million at end-June 2010.

Assuming the same 51% profit payout this year, dividends will total 30 sen per share. That translates into a net yield of 4.3% at the current share price of RM5.20.

Guinness pays higher dividends
Guinness, on the other hand, remains focused primarily on the domestic market. With lower capital expenditure — estimated at roughly RM50 million in the current financial year — dividend payout has stayed high, averaging at some 85% of net profits in the past five years.

The stock will trade ex-entitlement for a final tax-exempt dividend of 35 sen per share on Nov 11.

Assuming dividends totalling 45 sen per share — the same as that for FY10 — in the current year, shareholders will earn a net yield of 5.3% at the prevailing share price of RM8.46.

Guinness is sitting on net cash totalling almost RM150 million at end-June 2010. — InsiderAsia


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.

This article appeared in The Edge Financial Daily, October 8, 2010.

Tobacco and breweries may get a blow from Budget 2011

Tobacco and breweries may get a blow from Budget 2011

Written by Financial Daily
Thursday, 30 September 2010 11:37

Tobacco and brewery sectors
Maintain neutral on both: The tobacco and brewery industries are referred to by some as the “sin sector” (together with the gaming industry) in Malaysia. Like most parts of the world, these sectors are governed by tough government regulations and pay high excise duties. Our findings, which we elaborate in this report, are mainly focused on excise duty related to the sin sector.

Tobacco: From our recent channel checks, we sense that there is a possibility of cigarette pack prices being increased by about 30 sen to 60 sen per pack. This translates into a price increment of 1.5 sen to 3 sen per stick. Benchmarking against a premium 20s cigarette pack at RM9.30 (note that small 14s packs are no longer available), this could translate into pack prices potentially ranging from RM9.60 to RM9.90.

Although we did not manage to unearth the actual sum of the hike in tobacco excise duty, historically price increases have often involved a mark-up of 0.5 sen to 1 sen per stick above existing excise duty rates.

As such, the excise duty on cigarettes may go up by 1 sen to 2.5 sen per stick. All in all, we understand that the upward price adjustment in response to the excise duty rate hike will not breach the psychological level of RM10 per pack.

Brewery: We initially expected alcohol excise duties to be spared from a raise in the upcoming Budget 2011. However, the minister’s remarks about a possible hike in alcohol excise duty would be negative for the sector. Although we are unable to gauge the amount of increase, we deem any hike from the current RM7.40 per litre level as “damaging”. As a relative measure, alcohol-related duties and taxes account for some 48% of the retail price of beer. Adjusting for disposable income, alcoholic beverage prices in Malaysia may well be considered the highest in the world.

We see the companies in our “sin sector” coverage being slapped by higher excise duties in Budget 2011.

For the tobacco sector, although we do not make any changes to our earnings for now, we downgrade British American Tobacco (M) Bhd (target price: RM40.12) to a “sell” from “neutral” previously, given that its stock price has rallied strongly in the past quarter, while keeping JT International Bhd as a “buy” (TP:RM5.96) for its solid fundamentals, which will see it strongly positioned in the value-for-money cigarette segment, which is fast gaining popularity.

Brewers enjoyed a grace period from 2006 to 2009, when they were spared from hikes in alcohol excise duty.

However, the honeymoon seems to be over and we see an impending hike in Budget 2011 likely to scald sentiment.

We maintain our “neutral” recommendation for Guinness Anchor Bhd (TP: RM7.90) and our “buy” recommendation on Carlsberg Brewery Malaysia Bhd (TP: RM5.80). — OSK Invesment Research

This article appeared in The Edge Financial Daily, September 30, 2010.

GAB confident of continued growth

GAB confident of continued growth

Written by Daniel Khoo
Friday, 01 October 2010 10:58

PETALING JAYA: Having achieved nine consecutive years of growth in profit and market share since FY2000 ended June 30 is certainly a good reason for Guinness Anchor Bhd (GAB) to celebrate.

Another reason to cheer is that its managing director Charles Henry Ireland is upbeat that the stellar performance will continue riding on the back of a growing population in a modernising society and mindset despite critics saying otherwise.

“As a business, we have managed to consistently outperform the competition and the market through a good strategy. And we’ve still got some way to go before we fully exhaust the opportunity that comes from that strategy,” said Ireland.

He reckoned that as the country’s economy progresses further, the demand for beer will increase in tandem with it.

However, industry observers noted that the local beer market is maturing, in addition to the share-of-throat competition from other alcohol beverages like wine.

But, Ireland who has been with GAB for four years, does not agree that the domestic beer market is maturing. “You guys keep on talking about saturated market, but that’s not the way I see it”, he told The Edge Financial Daily.

“If you look at per capita consumption in the western world, it is higher than in the less developed countries.”

Malaysia has the lowest per capita consumption of alcohol in Southeast Asia. Statistics show that the per capita consumption of alcohol within the Indian and Chinese community is 21 litres per adult per year, whereas the figure in Thailand is three times more.

“Per capita consumption will increase gradually over the years. The growth has been quite stagnant over the past years because the government has over the last 10 years raised taxes from being one of the lowest in the world to one of the highest,” Ireland said.

Ireland’s belief is certainly not baseless, judging by the mushrooming of pubs and bars, particularly in the cities.

GAB distributes its products mainly through pubs and bars that have supply contracts that are renewable annually.

“Two years ago, we’ve got about 75% of all the new pubs that were opened that came up for supply contract. Last year, it was above 80%. So when a new bar opens in Malaysia, four out of every five have contracts with GAB. This creates the demand for our brands for consumers access to our products,” Ireland said.

Industry analysts estimate that GAB has a 57% market share of the Malaysian beer and stout industry.

GAB’s net profit had more than doubled to RM152.7 million in its FY2010 from RM60.95 million in FY2000 despite the several hikes in excise duty on alcohol drinks. 

Revenue had also doubled to RM1.36 billion in FY2010 from RM682.4 million in FY2000. Earnings per share had also shot up to 50.5 sen from 20.2 sen during the period.

Consequently, shareholders have been rewarded with higher dividend. GAB declared dividend per share of 45 sen in FY2010 versus 18 sen in FY2000.

GAB will continue to grow its market share by spending more on advertising and promotion (A&P) activities through simple leisure group activities especially through football sporting events.

“One of the things that we were doing four years ago is Tiger Football Club which is our platform around football. 

“We have increased our A&P budget again this year; we increased it last year and the year before. This is the fifth year I have been in the company now and every year we’ve increased our budget,” Ireland said.

“We do that because we see A&P as investments, you make wise investments and you will get superior returns.” 

The company has seen its main product brand Tiger beer outperforming the overall market with “double digit growth rates”, and this has been its key growth driver of profits and revenue.

Tiger is its biggest brand, in terms of sales volume. However, Heineken and Guinness Stout command better margin due to the more premium price. 

Asked about GAB’s individual market share for its brands, Ireland did not want to divulge specific details but gave rough estimates saying “Tiger’s (market share) is 2.5 times the size of Guinness, and Guinness is twice the size of Heineken. Heineken is twice the size of Anchor”.

According to Charles, the company’s management had this year raised salaries for its staff that he said are “above market rates”.

He stressed that the amount spent on human resources, such as higher salaries, is a form of investment, not costs. 

“It is people that make the difference in a business, and we want to retain the best talent. Lots of businesses have got great brands; lots of businesses have got good profit and loss, balance sheets and cash at hand,” Ireland said.

“To be able to sustain performance over the medium and long term and to beat the competition year after year — it takes great people doing the right things in the right way.”

This article appeared in The Edge Financial Daily, October 1, 2010.

http://www.theedgemalaysia.com/in-the-financial-daily/174539-gab-confident-of-continued-growth.html

World Cup drives Guinness’ 4Q profit

World Cup drives Guinness’ 4Q profit
Tags: fourth quarter | GAB | world cup

Written by Yong Min Wei
Thursday, 05 August 2010 12:03

KUALA LUMPUR: Guinness Anchor Bhd’s (GAB) net profit for the fourth quarter ended June 30, 2010 (4QFY10) rose 30.2% to RM35.66 million from RM27.39 million a year earlier, boosted by higher sales from commercial activities during the 2010 FIFA World Cup.

The leading brewer’s revenue climbed 11.7% to RM308.71 million from RM276.27 million, while basic earnings per share (EPS) came in at 11.81 sen versus 9.07 sen previously.

GAB proposed a final dividend of 35 sen per 50 sen share (tax exempt) under a single-tier system for the year ended June 30, 2010, bringing total dividend for the year to 45 sen. Its net asset per share stood at RM1.56 as at June 30.

For FY10, the group reported a record RM1.35 billion in revenue versus RM1.28 billion in FY09 while full year pre-tax profit rose 7% to another record of RM205.33 million from RM191.91 million. Net profit rose 7.5% to RM152.69 million from RM141.99 million, while EPS rose to 50.54 sen from 47 sen.

GAB managing director Charles Ireland said the group had achieved nine consecutive years of growth in revenue and profit. He said the group’s market share in the malt liquor market (MLM) had been improving every year and that it was currently controlling close to 60% share compared with the low 40%-plus levels five years ago.

“This track record really does show what an exceptional blend of people, brands, and performance we have in GAB,” he told a press conference yesterday.

“It is fitting that in the year of the tiger, Tiger beer is leading our growth. Guinness, Heineken, Kilkenny and Anchor also continue to contribute to our good performance,” Ireland said.

He said one of GAB’s core strengths was in its portfolio of international brands, adding the management had substantially invested in building brand equity to strengthen its value proposition to consumers.

He said GAB would be introducing a new range of products in the MLM market in the next six months but was tight-lipped on the number and origin of products except that they involved beer and stout.

Nevertheless, Ireland noted that the MLM was sensitive to overall economic conditions and excise duties although the group was optimistic that it would perform satisfactorily in FY11.

“As Malaysia has the second-highest excise duty on alcoholic products in the world, the industry hopes there will be no increase in excise duties in the coming Budget 2011,” he said.

On capital expenditure (capex), Ireland noted GAB spent in the region of RM40 million in FY10 and that it was expecting to spend about RM50 million in FY11, the bulk of which would be invested to supply the “highest quality” beer and stout as well as to ensure its brewery conformed to international standards of production.

GAB’s share price yesterday added eight sen to close at RM8.10 with 16,200 shares traded.


This article appeared in The Edge Financial Daily, August 5, 2010.

Guinness Anchor Malaysia Q4 profit jumps 30%. Company’s full year pre-tax profit crosses RM200mil for the first time

Guinness
4.8.2010

At the price of 8.10, this counter is trading at a ttm-PE of 16.95 with a DY of 5.06%.

Historical 5 Yr Data
EPSGR 7.6%
DPSGR 6.2%
PE range 12.3 to 15.6
DY range 6.9% to 5.4%

Its present ttm-PE is at the high end of its historical PE range.
Its DY is at the lower end of its historical DY range.



Recent Stock Performance:

1 Week	4.4%		13 Weeks	5.4%
4 Weeks	18.0%		52 Weeks	31.1%

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Thursday August 5, 2010

Guinness Anchor Q4 profit jumps 30%

By Leong Hung Yee hungyee@thestar.com.my

Company’s full year pre-tax profit crosses RM200mil for the first time

PETALING JAYA: Guinness Anchor Bhd’s (GAB) net profit jumped 30.2% to RM35.7mil for the fourth quarter ended June 30, from RM27.4mil a year ago, boosted by higher sales during the 2010 FIFA World Cup.

Its revenue for the quarter was 11.7% higher at RM308.7mil from RM276.3mil a year ago.

It reported earnings per share of 11.81 sen versus 9.07 sen a year ago.

The brewery also proposed a final dividend of 35 sen per 50 sen stock unit for the quarter.

For the full year, GAB’s net profit was higher at RM152.7mil, or 50.54 sen per share, on revenue of RM1.36bil.

Managing director Charles Ireland said the better performance marked the brewery’s ninth consecutive year of growth.

“Our pre-tax profit hit a record of RM205mil.

“This was the first time we crossed the RM200mil mark,” he said in a briefing to announce its latest quarterly results.

Ireland said the group had also managed to increase its market share in the malt liquor market to close to 60% from a low 40% nine years ago.

To a question, he said market share was less important to the group now.

He said the group’s various promotional campaigns such as Year of Tiger, Arthur’s Day, St Patrick’s Day and the recent World Cup viewing parties had paid off.

“We have been delighted with the performance of Tiger Beer especially in the last six months,” he said.

He added that GAB would be introducing more brands locally over the next six months, but did not elaborate.

Going forward, Ireland expects its current financial year ending June 30, 2011 (FY11) to be “another good year” for GAB.

“The year has started very well for us,” he said.

Ireland said one of the challenges for the current year was to sustain its performance to yet another record year.

The GAB chief said the group had allocated RM50mil for capital expenditure for FY11 in order to produce the highest quality beer.

He added that GAB would invest some RM3mil in a bottle inspection system to make sure its bottles were not chipped, among other concerns.

“We are also investing in crates, drafts and bottles to meet the growing demand,” he said.

Ireland is also hoping that the Government would not increase excise duties in the upcoming Budget 2011.

“We are hopeful that the Government will not increase the tax as Malaysia has the second highest excise tax in the world after Norway on alcoholic products,” he said.

Ireland said a higher tax would not necessarily increase revenue collection for the government as it could instead prompt smuggling activities.

http://biz.thestar.com.my/news/story.asp?file=/2010/8/5/business/6800187&sec=business

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AmResearch downgrades Guinness Anchor to Hold
Written by AmResearch
Thursday, 05 August 2010 08:55


KUALA LUMPUR: AmResearch is downgrading GUINNESS ANCHOR BHD [] (GAB) to HOLD.

It said on Thursday, Aug 5 that despite the group’s still positive earnings prospects, its higher fair value of RM8.62/share (at parity to DCF-estimates) offered limited upside potential (<15%) and valuation is no longer attractive.

GAB’s earnings for the 12 months ended 30 June was up a decent 8% YoY to RM153mil, meeting AmResearch’s full-year forecast as well as consensus estimates.

Year-to-date, GAB maintained its leadership position with 57% market share, and circa 70% of industry profit pool.

“In view of GAB’s proven track record in maintaining its leadership position with 57% market share in the duopoly industry, we have removed the 10% discount to our DCF-based valuation model.

“Consequently, we arrive at our higher fair value of RM8.62/share (previously RM7.50/share) based at parity to our DCF-estimates,” it said.

http://www.theedgemalaysia.com/business-news/171219-amresearch-downgrades-guinness-anchor-to-hold.html

Historical Investment Data of Guinness (6.6.2010)

Historical Investment Data of  Guinness (6.6.2010)
http://spreadsheets.google.com/pub?key=tem-b3yiUnbRUIT1ZeZagbg&output=html

A quick look at Guinness (7.5.2010)

A quick look at Guinness (7.5.2010)
http://spreadsheets.google.com/pub?key=tP_TV-Arxg9uwwrvWyZ_kvw&output=html


Guinness Anchor 3Q net profit up 42.5% to RM46.5m
Written by Surin Murugiah
Friday, 07 May 2010


KUALA LUMPUR: GUINNESS ANCHOR BHD []'s net profit for the third quarter ended March 31, 2010 rose 42.5% to RM46.46 million from RM32.6 million a year earlier, on the back of a 17.8% increase in revenue to RM370.82 million.

Earnings per share rose to 15.38 sen from 10.79 sen a year ago.

Managing director Charles Ireland said on Friday, May 7 the sales and profit increase was partly due to the later timing of the Chinese New Year celebrations, a traditional driver of sales of the malt liquor market.

Ireland said GAB's third quarter performance had further extended its position as Malaysia's market leader in the MLM, adding that as of end of FY09 ended June 30, GAB recorded eight successive years of volume, revenue and profit growth.

"I am happy to report that GAB is on track to meet our targeted full year results for FY10 ending June 2010," he said.

http://www.theedgemalaysia.com/business-news/165628-guinness-anchor-3q-net-profit-up-425-to-rm465m.html

A quick look at Guinness

A quick look at Guinness
http://spreadsheets.google.com/pub?key=tSCusGR7iTR_cDeZdNn7q9w&output=html

Guinness Anchor 2Q net profit up 26.4% at RM43.82m

Guinness Anchor 2Q net profit up 26.4% at RM43.82m


Written by Joseph Chin
Tuesday, 09 February 2010 18:22
Bookmark and Share

KUALA LUMPUR: GUINNESS ANCHOR BHD []'s second quarter net profit rose 26.4% to RM43.82 million from RM34.67 million a year ago and it expects a better year ahead for its brands.

It said on Tuesday, Feb 9 revenue rose 15.1% to RM378.13 million from RM328.52 million. Earnings per share were 14.5 sen versus 11.48 sen. It declared an interim dividend of 10 sen per share.

For the first half, net profit was RM70.56 million, down 14% from RM82 million in the previous corresponding period. Revenue was also lower at RM679.1 million versus RM694.32 million.

http://www.theedgemalaysia.com/business-news/159433-guinness-anchor-2q-net-profit-up-264-at-rm4382m.html

Investment Prudence: Dividend Paying Stocks

Friday, August 14, 2009
Investment Prudence: Dividend Paying Stocks


Investors follow many different approaches towards investment and this post is for the investors who would like to preserve the capital first and gets satisfied with decent return through capital gains. In fact many legendary investors have followed this strategy and they have been mostly successful. Yes. I am talking about investing in the “high dividend paying stocks”.

What is Dividend?

It’s the portion of corporate profit paid to shareholders by a company. High dividend yielding stocks usually have high reputation among defensive investors. It’s widely believed that a company is effectively managed if the shareholders are paid dividends continuously.



Approach

The notion that high dividend yielding stocks do not appreciate much is not entirely true at least if we look at the stocks I have mentioned below. All of these stocks performed well over the year apart from paying out decent dividend yields.

Madras Cement
Graphite India
Varun Shipping
GE Shipping
Ambuja Cements
MIRC Electronics
Chambal Fertilizers
HCL Technologies
Tata Steel
Tata Tea
Lakshmi Machine Works
Shipping Corporation
GAIL India Ltd
Sesa Goa
Canara Bank
Bank of Baroda
Punjab National Bank
Hindustan Unilever Ltd
Marico Ltd
Indian Overseas Bank

If you are a long term investor and do not have high appetite for risk, then investing in the “high dividend” yielding stocks not only protects part of your capital but also gives you decent return. I will explain with an example.

Ex: Varun Shipping

Assume that you bought 1000 shares of Varun Shipping at Rs. 40 / share. Total investment comes out to be about 40000 thousand rupees. Assume that you are a long term investor and have plans to hold the stock for next five years. Varun Shipping has the history of paying Rs. 5 – 6 per share as a dividend (50 % of the face value) every year and we assume Rs. 5 / year as the dividend for next 5 years.

First Year Dividend: Rs. 5 / share (Rs. 5000 / 1000 shares). The dividend yield itself is 12.5%. Even if your Cost price was Rs.50 per share, the dividend yield would be 10 % which some stocks do not even give as a capital gain. Suppose you deposit this Rs. 5000 in a bank and you get 7% as interest. You get Rs.350 as interest and the total amount for the first year is Rs.5350.

Second Year Dividend: Rs. 5 / share (Rs. 5000 / 1000 shares). Add this amount with the first year amount. Rs. 5000 + Rs. 5350 = Rs. 10350. Interest at 7% for Rs. 10350 is Rs. 725 and the total amount at the end of second year is Rs. 11075.

Third Year Dividend: Rs. 5 / Share. Do the same calculation. Rs. 11075 + Rs. 5000 = Rs. 16075. Interest at 7% for Rs. 16075 = 1125. Total amount at the end of Third year = Rs.17200.

If we follow the same calculation, we will have Rs. 31000 after 5 years which is 78% of your initial capital investment. This will go along with the capital gains that you get because of appreciation in stock value. If we assume that Varun Shipping matches the market performance which is around 15% CAGR, then we will have Rs. 81000 after 5 years and adding that with dividend + interest income will give Rs. 112000 as the total value of the investment after 5 years. The calculation is based on a conservative approach which gives 180 % return. But if the stock performs better than the market, then the return might well go above 200 % which should make most of the investors happy.

Similar stocks are available with similar dividend yield and investors with less risk appetite may opt for these kinds of stocks and follow the above explained strategy. In fact most of the stocks I mentioned above have performed better than the market and some are even in the aggressive investor’s portfolio. So, we just need to try this approach once to see the effectiveness.

Kumaran Seenivasan
http://www.stockanalysisonline.com/



http://www.stockanalysisonline.com/2009/08/investment-prudence-dividend-paying.html


My notes: The above explanation can be used for the local Malaysian stock of Guinness. :-)