Investment Highlights

• Carlsberg Brewery's (M) (Carlsberg) 1QFY17 earnings were boosted by a one-off settlement as the Malaysian operation saw robust growth due to seasonality factors. We adjust our DCF-derived fair value to RM17.52/share (from FV: RM16.10) (terminal growth: 2.0%, WACC: 7.3%) as we roll over our valuation period to FY19 from FY18. This implies a forward PE of 20.6x, which is the 3-year PE band average. We opine valuations are fairly reflective of Carlsberg's forward growth prospects.

• Carlsberg registered a 1QFY18 core net profit of RM76.1mil (QoQ: 52.2%, YoY: 13.0%) against a topline of RM548.5mil (QoQ: 27.6%, YoY: 9.1%). It was in line with our and consensus estimates at 31% and 30% respectively.

• Dividend amounting to 20 sen/share was declared as expected. The quarterly dividend payout signifies the shift in a more frequent dividend payout policy, declared last quarter.

• Carlsberg's results key highlights include: i. Revenue was driven by the Malaysian operation (YoY: 20.8%) as it was partially offset by contracting Singapore sales (YoY: 8.0%) off unfavourable forex and softer volume growth. ii. Sturdy quarterly revenue for Malaysia was boosted by favourable Chinese New Year spending, coupled with trade re-stocking in March, in the lead-up to ASP adjustment on 1 Apr 2018. Against similar margins in the corresponding comparable quarter, operational earnings grew by a similar quantum. iii. Aside from a possible World Cup-related revenue upside potential beyond our estimates, we expect the Malaysian revenue to normalise for the remainder of the year. We gather ASPs have been adjusted by around 3%, marginally lower than that by Heineken Malaysia’s of 4-5%. iv. Its Sri Lanka-based associate brewery Lion Brewery successfully claimed final insurance settlement amounting to RM4.7mil relating to the floods that hit operations in 2016. Operationally, the Sri Lankan brewer was encouragingly profitable. We expect it to contribute RM10mil for FY18F.

• We maintain our forecasts as earnings have fallen in line with expectations. Key risks to Carlsberg include: i) slower-than-expected recovery in Lion Brewery; ii) proliferation of illicit alcoholic beverages; iii) strengthening of the MYR relative to the SGD.

Source: AmInvest Research - 18 May 2018