- In an announcement to Bursa Malaysia yesterday, Carlsberg Brewery (M) (CAB) said that it has received two bills of demand from the Selangor State Director of Royal Malaysian Customs (RMC). Both bills were dated 17 September 2014.

-  The bills, which were for the period of 1 July 2011 to 14 January 2014, were in relation to:

1. Excise duty amounting to RM35.7mil;

2. Sales tax amounting to RM13.8mil and a penalty amounting to RM6.9mil.

-  According to the announcement, CAB does not admit to the liability and will be seeking advice to ascertain its next move. No further details were provided.

-  This news is negative for the group and comes just as CAB and its peer Guinness Anchor Bhd (GAB) (HOLD; FV:RM14.00/share) have to pay higher taxes to the RMC beginning January 2014 and November 2013, respectively.

-  Recall that the customs department had recently revised the valuation base for locally-manufactured beer products although it maintained the excise duty at RM7.40/litre. CAB’s management did not provide the quantum of uplift but for GAB, it was RM18mil.

-  Based on our back-of-envelope calculation, the total sum of the bills of demand of RM56.3mil could shave off at least 29% of our FY14F net profit estimate of RM194mil.

-  We are leaving our earnings forecasts unchanged for now pending further clarification from management.

-  Maintain our HOLD recommendation on CAB with an unchanged DCF-based fair value of RM13.80/share.

Source: AmeSecurities