Results

Within expectations – 1QFY14 PATAMI of RM52.3m came in within expectations, accounting for 27.5% and 27.1% of our’s and consensus full year forecasts respectively.

Historically, Carlsberg’s 1Q PATAMI accounts for approximately 27-29% of full year earnings.

Deviations

None.

Dividends

None. Dividends are declared on a semi-annual basis.

Highlights

Yoy: Revenue in 1QFY14 declined marginally by 5.3% largely contributed by the decline in both Malaysian and Singaporean market, due to weak consumer sentiments and stock rationalization program (ended in 1QFY14), respectively. Earnings returned to the black on the back of effective rolled-out of efficiency programs.

Qoq: Carlsberg experienced revenue growth of 15% largely attributed to the growth from its Malaysian operations where it benefited from the Chinese New Year festive season. Singapore however continued to be impacted from the steep hike in excise duty of 25%. Earnings were compromised due to higher operating expenses incurred for Chinese New Year’s marketing campaigns.

Despite the challenging and softening market in both Malaysia and Singapore, we are encouraged by the group’s effort to improve its FY14 bottomline via: 1) the launch of Somersby Pear Cider is expected to boost the group’s ciderbeer segment; 2) the completion of stock rationalization in Singapore will begin to benefit the group by emphasizing on product freshness; 3) recent acquisition of MayBev Pte Ltd to enable Carlsberg to distribute Asahi Super Dry in the country; and 4) rolling-out of cost efficiency programs.

In addition, we also believe the World Cup event beginning June would also benefit Carlsberg’s total consumption volume, albeit marginally.

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

Forecasts remained unchanged. However, we have finetuned our numbers based on its FY13 audited accounts, hence FY14-16 EPS varies between -0.5 to +2.0%.

Rating

BUY

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-adjustments, target price is raised to RM13.77 (from RM13.70). Given that share price have retraced to below RM13, we now upgrade our recommendation to BUY.

Source: Hong Leong Investment Bank Research - 28 May 2014