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

- CAB reported a 3QFY15 net profit of RM62mil to extend its cumulative 9M earnings to RM141mil. Excluding the one-off RM12.5mil impairment loss in relation to its divestment of Luen Heng F&B Sdn Bhd (LHFB) in 2QFY15, its 9MFY15 core net profit was RM154mil. The results were within our and consensus expectations, constituting 72% and 74% of the full-year estimates.

- No dividends were declared this quarter. The group usually announces a larger-quantum final and special dividend in 4Q. Our dividend forecasts, which are based on a 100% payout ratio, translate to average yields of 6% at the current price.

- YoY, CAB’s 9MFY15 revenue and core net profit were higher by 2% and 4%, respectively, as the better performance of Carlsberg Singapore (CAS) was partially offset by that of its Malaysian operations.

- While Carlsberg Singapore’s (CAS) EBIT margin is still below its historical 20% (9MFY15: 18%), we are not overly concerned as it has been expanding sequentially by 7-9 ppts on the back of higher sales volume (1HFY14 impacted by a 25% excise hike), improved price mix, effective cost management, additional contribution from Maybev and forex gains from a stronger SGD.

- We understand that the drag in its Malaysian performance was due to the divestment of LHFB (revenue for its domestic outfit would have declined by a smaller 4.6% vs. 6.8% when adjusted for the divestment impact) and higher raw material costs following the weakening of the RM. Overall, CAB’s 9MFY15 EBIT margin was marginally lower by 1ppt to 15%.

- On a quarterly basis, its core earnings had jumped by 41% although revenue was only higher by 0.8% due to its lower operating costs.

- Looking ahead, we expect the group to report equally strong numbers for its final quarter of FY15F. While the festive season may result in better sales growth, we caution that CAB’s margins may be crimped as it may have to offer price discounts and invest in more A&P activities to drive the volumes.

- We are leaving our FY15F-FY17F earnings forecasts unchanged for now. The stock is presently trading at FY15FFY16F PEs of 15x-16x, midway of its 5-year PE band. Our fair value implies a PE of 20x (+1SD above mean).

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

Source: AmeSecurities Research - 1 Dec 2015