-  We maintain our HOLD recommendation on Carlsberg Brewery (M) Bhd (CAB) with an unchanged DCF-based fair value of RM13.80/share.

-  CAB’s 1HFY14 results were within expectations. Its annualised 2QFY14 net profit of RM40mil (QoQ: -24%; YoY: +30%) accounted for 48% of our and consensus estimates.

-  Compared to the previous quarter, CAB’s 2QFY14 revenue had contracted by 20%. The lower sales achieved in the quarter was mainly due to the absence of a festive season (i.e. CNY), which helped buoyed sales in 1Q (+15% QoQ). 2Q is seasonally the weakest quarter for CAB.

-  On a YoY basis, CAB’s net profit had increased by a commendable 13% to RM92mil on the back of a marginal 1.6% fall in turnover.

-  CAB’s earnings improvement can be attributed to the turnaround of its Singapore operations, cost savings from its efficiency programs, an improved price and product mix as well as a higher share of profit from its Sri Lanka associate (+90% YoY).

-  As expected, earnings at CAB’s wholly-owned Singapore subsidiary, Carlsberg Singapore (CAS), had rebounded in 2QFY14. Its QoQ revenue and EBIT had expanded by 26% and 58%, respectively, following:- (1) the completion of its stock rationalisation programme; (2) resilience of consumers there to an excise duty-led price increase of 10% in Feb 2014; and (3) synergies from its 1Q acquisition of MayBev – exclusive distributor of Asahi in Singapore.

-  The group’s EBITDA margin had expanded by 1.3ppts QoQ and 2.7ppts YoY for 1HFY14 in tandem with CAS’ rebound (with margins typically 4-5ppts higher than CAB’s) and continuously strong performance of its premium/super premium brands.

-  While management acknowledged that some downtrading activities towards the value segment have occurred in view of declining consumer sentiment, it believes that the trend will be temporary. It maintains that the greatest threat to domestic MLM volumes, which are down by a “high single-digit” for 1HFY14, is the influx of imported parallel products/contrabands.

-  Like its peer, CAB had been subjected to higher tax payments to the Royal Malaysian Customs beginning Jan 2014 following a revision in the valuation base for locally-manufactured beer products. Management did not provide the quantum of uplift.

-  A single-tier interim dividend of 5 sen/share was also declared. Our FY14F gross DPS of 64 sen implies a yield of 5.2% and net payout of 100%. The bulk of its dividends are announced in 4Q.

Source: AmeSecurities