Results

Within expectations – 9MFY13 PATAMI of RM119.9m came in within expectations, accounting for 82.8% our full year forecasts. However, CAB came in below consensus’s estimated, accounting for only 66.8% of its full year estimates.

We consider this in-line as we expect 4Q to report a weaker result given the softening in consumer spending as well as the maturing market on brewery sector. Besides, 4Q is seasonally lower compared to other quarters.

Deviations

None.

Dividends

None. Carlsberg Brewery usually declared dividend twice every year, 2Q (interim) and 4Q (final).

Highlights

Malaysia: On the poor performance in the Malaysia operations, MD Henrik Juel Anderson commented that the market was affected by the timing of the National Budget 2014 announcement. The later announcement resulted in the absence of stocking-up activities, which the group believes would materialize in 4Q.

Despite that, we continue to remain cautious and conservative view on the sector as the brewery market is saturating.

Singapore: Revenue of the Singapore operation was under pressure due to an influx of cheap imported beer as well as the stock rationalization program which started in 2QFY13 and continued throughout 3QFY13.

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 year-end.

Risks

• Excise duty hike after absence of 8 years;
• Higher-than-expected raw material prices;
• Lower-than-expected TIV; and
• Continuous decline in market share.

Forecasts

Unchanged.

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

Target price remained unchanged at RM12.25 based on DCF valuations. We continue to maintain HOLD on the stock given its share price have retraced back with total potential return within our house rule of ±10% range.

Source: Hong Leong Investment Bank Research - 19 Nov 2013