Results

Above expectations – FY13 revenue of RM1.56bn came in line with ours (98.5%) and consensus estimates (97.4%). However, FY13 PATAMI of RM183.9m came in above expectations, accounting for 127.0% and 111.6% of our’s and consensus full year forecasts respectively.

Deviations

Lower-than-expected operating expenses.

Dividends

Declared final dividend of 56 sen (4QFY12: 58 sen), totaling 61 sen or FY13, representing a payout of 101.4% and yield of 4.8%. This is in-line with our projection of 100% payout.

Highlights

FY13 was a challenging year for Carlsberg due to the unconducive environment as well as the one-off stock rationalization program in Singapore (2Q13 - 4Q13).

Although we continue to see domestic malt liquor market to remain flattish in FY14, operations in Singapore could potentially record some growth (single-digit), benefiting from the stock rationalization program that has ended in Jan ’14.

Carlsberg’s premium beer brands continue to deliver on strategy with further market share gain (i.e: Asahi Super Dry and Kronenbourg 1664).

Somersby Cider (launched in July 2012) is now the leading cider beer in Malaysia. The cider beer has performed tremendously well with 382% volume growth (also due to low base effect) and yoy market share gain of 29ppts.

On FY14 outlook, malt liquor market would continue to be challenging with rising costs of living. Nevertheless, the group has solid plans in hand to boost consumption with its strong portfolio. Management have highlighted that there will be some exciting launches on its way sometime next month, which we presumed to be some new brands or line extensions.

On a more positive note, Carlsberg have already experienced an impactful effect from its CNY campaign during its first month into FY14.

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

We are keeping our topline growth but we tweaked our bottomline margins wider by ~2ppts on the back of lower operating expenses from better costs savings and efficiencies.

Rating

HOLD

Positives – 1) High dividend yield stock; 2) Duopoly industry; 3) Resilient earnings; and 4) Low capex requirements.

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

Valuation

Post-earnings revision, we raise our TP to RM13.70 (from RM13.17) based on DCF valuations. We have also adjusted our 2-years adjusted beta accordingly given that it has changed significantly throughout the year. Maintain HOLD.  

Source: Hong Leong Investment Bank Research - 24 Feb 2014