Investment Highlights

• Carlsberg Brewery’s (M) (Carlsberg) 4QFY17 earnings were in line; we adjust our DCF-derived fair value to RM16.10/share (from FV: RM15.50) (TG: 2.0%, WACC: 7.3%). This implies a forward PE of 19.4x, which is the 3- year PE band average. We think valuations are fairly reflective of Carlsberg's forward growth prospects.

• Carlsberg’s 4Q17 core profit of RM50.0mil (YoY: 6.2%, QoQ: 16.7%) brought full year earnings to RM218.8mil (YoY: 6.7%). It was in line with our estimate at 100% but below consensus at 93% of full-year numbers respectively.

• Dividend amounting to 77 sen/share was declared, bringing its total dividends to 87 sen/share for FY17 (FY16: 72 sen/share). Carlsberg is adopting a new dividend policy. 3 interim consisting 75% payout each while the fourth interim will cumulatively amount to a 100% payout. This deviates from a back loaded bullet dividend payout.

• Carlsberg’s results key highlights include: i. 4QFY17 Malaysia revenue grew 5.4% against A&P driven initiatives. Commercial investment spent on new premium products correspondingly resulted in operational earnings declining 12.1% YoY. Cumulatively, earnings grew 10.7% YoY against largely raised ASPs and better product mix. ii. Singapore saw earnings decline -16.1% despite revenue growing 2.4%. Trade rebates were a contributing factor to the margin contraction. Going forward, Singapore contributions could be impacted the forex. By our estimates, FY18F earnings could be impacted by -1% for every 1% the MYR appreciates against the SGD. iii. Its Sri Lanka-based associate brewery Lion Brewery made good headway, increasingly profitable at RM2.7mil in 4Q17. We gather operations ran at optimal levels. Apart from that, it expects further insurance compensation amounting to RM5.6mil in FY18. Notwithstanding the insurance claim, we expect Lion Brewery to contribute close to RM10mil (below its peak of RM16mil) going forward.

• We tweak our FY18F/FY19F earnings by 4% to factor in year-end housekeeping adjustments. Key risks to Carlsberg include: i) elevated competition; ii) slower than expected recovery in Lion Brewery; iii) proliferation of illicit alcoholic beverages; iv) strengthening of the MYR relative to the SGD.

Source: AmInvest Research - 15 Feb 2018