Results

Below expectations – 1HFY13 PATAMI of RM81.4m came in below expectations, accounting for only 41.9% and 39.8% of ours and consensus’ full year estimates respectively.

Deviations

Narrower-than-expected margins.

Dividends

Declared single-tier interim dividend of 5 sen/share (1HFY12: 5 sen/share), representing a payout of 49.5%. We are not changing our dividend payout estimates of 100% as the group usually announces a larger sum of dividends in 4Q.

Highlights

YTD: Carlsberg reported a revenue decline of 2.6% on the back of poor performance in both domestic and Singapore market or fall of 1.03% and 5.82% respectively.

The marginal decline from domestic operations was due to 6.7% decline in 2QFY13 from lower sales volume despite a price hike. We believe higher incentives/commissions given to distributors also contributed to the fall (average selling prices of beer products).

As for the operations in Singapore, the stiff competition from other imported beer brands continues to adversely impact its business. Furthermore, Carlsberg embarked on a deliberate stock rationalization exercise in 2QFY13.

We believe that the softening in the brewery industry is across the board as we also see similar trend for Guinness Anchor Bhd (GAB).

Moreover, we do not dismiss the potential of any excise duty hike to be announced in the near term despite its absence for the 8th consecutive years now (including 2013).

Hence, we continue to remain cautious on the industry with only low single-digit growth assumption in total industry volume (TIV) yoy, coupled with compression in net margins arising from additional investments and marketing campaigns to be carried out in 4QFY13.

Risks

1) Excise duty hike after absence of 8 years; 2) Higher-thanexpected raw material prices; 3) Lower-than-expected TIV; and 4) Continuous decline in market share.

Forecasts

We cut our earnings for FY13-15 by 25% to account for several factors which include: 1) softening demand in both Malaysian and Singaporean market; 2) possibility of higher incentive/commission to distributors and 3) margin compression from aggressive marketing campaigns.

Rating

HOLD

Positives – 1) High dividend yield stock; 2) Duopoly industry; and 3) Resilient earnings and low capex requirements.

Negatives – 1) Highly regulated industry; and 2) Potential excise duty hike.

Valuation

Post-earnings revision, we downgrade our TP by 17% to RM12.13 (previously RM14.57) based on DCF valuations. We continue to maintain HOLD on the stock given its share price have retraced back within our house rule of ±10% range.

Source:Hong Leong Investment Bank Research - 28 Aug 2013