- We reiterate our BUY recommendation on Carlsberg Brewery (M) (CAB) with an unchanged DCF-derived fair value of RM13.70/share.

- CAB reported a net profit of RM32mil for 2QFY15 to bring its 1HFY15 earnings to RM79mil. This, however, included a oneoff RM12.5mil impairment loss in relation to its divestment of Luen Heng F&B Sdn Bhd (LHFB).

- To recap, CAB had in May 2015 announced that it is selling its entire 70% stake in LHFB for a total cash consideration of RM19.5mil. We understand that the exercise had since been completed and LHFB is no longer a subsidiary of CAB.

- Stripping out this exceptional loss, CAB’s core interim earnings of RM91mil was within our and consensus full-year estimates. CAB’s earnings are typically stronger in 2H.

- Compared to the previous quarter, CAB’s 2QFY15 revenue was lower by 6.3% in view of the seasonally weaker demand post the CNY festivities in 1Q. Correspondingly, its core earnings has also declined by a similar 6.4%.

- YoY, CAB’s 1HFY15 core earnings were marginally lower (-1.1%) although its top line increased by 3.7%. Its flattish performance was mainly due to the poorer performance of its Malaysian operations (revenue: -5.3%; EBIT: -39%), which neutralised its Singapore division’s growth (CAS) (revenue: and EBIT: +35%).

- We understand that the group’s domestic business recorded lower MLM sales volumes post the Dec 2014 price increase and margins were impacted by higher raw material costs due to the weakening RM. These were however, partly offset by cost savings from its ongoing cost efficiency programs.

- Meanwhile, operations at CAS recovered thanks to higher sales volumes (1HFY14 impacted by a 25% excise hike), improved pricing and product mix as well as additional contribution from Maybev, which it acquired in April last year.

- As expected, CAB declared a 5 sen/share single-tier interim dividend for the quarter. The group usually declares a largerquantum final and special dividend in 4Q.

- We make no changes to our FY15F-FY17F earnings estimates. The stock is currently trading at FY15F-FY16F PEs of 14x-15x. This is a tad below its 5-year mean PE of 16x. Our fair value implies a forward PE of 20x.

- We believe the slight valuation premium (+1SD) is justified given the stock’s resilient earnings profile and attractive yields of 6%. Its position as a relatively safe consumer play offering stable returns will appeal to investors seeking respite from the present market volatility.

Source: AmeSecurities Research - 26 Aug 2015