Highlights

• Among the highlights during Carlsberg’s analyst briefing yesterday were:

• The beer industry experienced a slight decline in volume throughout FY14, mainly impacted from the poor sentiment in 1HFY14. However, volume was able to pick up momentum in 2HFY14.

• The improved performance in Singapore was attributable to the recovery in consumption volume in 2HFY14 as consumers adjusted to the new pricing post-excise duty hike. Management shared that it expects to see Singapore’s beer market to grow marginally by low single-digit in FY15 given competitive operating environment.

• Recall that, Singapore government raise excise duty hike significantly by 25% in Feb 2014, resulting Carlsberg Singapore to raise its ASP by 10% overnight. Volume plunged following the price hike through Feb-June but recovered thereafter.

• Carlsberg Green Label (CGL)’s sales volume remained the majority for the group. Premium beers (Asahi, Kronenbourg, Somersby) continued to gain momentum with solid growth. Although the proportion of premium beers’ volume to total volume remained small at approx. 10%, we gather that the former’s market have been growing steadily over the past 3-4 years by 1-ppts p.a.

• The group will continue to invest in its key brands with aim to boost consumption volume as management is expecting FY15’s volume growth to remain flattish at best. The major investments for FY15 would be largely on CGL, Asahi, Kronenbourg and Somersby.

• Apart from efforts done on these brands, Carlsberg have also completed facelifts on Royal Stout, Carlsberg Special Brew and Jolly Shandy. As a result, all three brands have recorded impressive growth and have revitalized their market share in in the industry.

• Hence, with all these efforts in place, we believe the group’s premium beer segment could continue to perform, improving its brand and product mix going forward, as premium beers commands better margins.

Risks

• Excise duty hike after absence of 9 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;3) Resilient earnings; and 4) Low capex requirements.

Negatives

• 1) Highly regulated industry; and 2) Potentialexcise duty hike.

Valuation

Maintain HOLD with unchanged TP of RM12.50 based on DCF valuations.

Source: Hong Leong Investment Bank Research - 3 Mar 2015