Result

• Below Expectations - 1QFY15 PATAMI of RM 47.23m came in below expectations, accounting for 22.0% and 21.7% of ours and consensus’s full year estimates , respectively.

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

Deviations

• Lower than expected sales volume in Malaysia.

Dividends

• None. Dividends are usually declared semi-annually.

Highlights

• Yoy: Revenue experienced a decline of 3.7%% mainly due to dismal contributions from the Malaysian operations which recorded a decline of 12.8% yoy (1QFY14:RM366.69m vs. 1QFY15:RM319.77m). This is attributed to lower sales volume resulting from the dampened consumer sentiment in the lead up to the introduction of GST. Furthermore, it was highlighted that customers opted to maintain minimal stocks in March ahead of GST rather than stocking up.

• Qoq: Carlsberg recorded a marginal 1.3% gain in revenue of RM429.5m. Despite strong performance during the CNY period, PBT declined by 18.4% to RM66.84 due to higher operating expenses (+6.8% qoq).

• Geographically, operations in Singapore continue to gain traction, growing 38.4% yoy with total revenue of RM109.69m (1QFY14:RM79.25m). This is on the back of improved consumer sentiment, resulting in higher sales volume for the period as well as additional profit contributions from the Maybev acquisition.

• Management expects that domestic market conditions in 2015 to continue to remain challenging, especially with consumers adjusting to the new pricing environment post- GST implementation and are cautious with their spending.

Risks

• Excise duty hike after absence of 9 years.
• Higher-than-expected raw material prices.
• Lower-than-expected TIV.
• Continuous decline in market share.

Forecasts

• On the back of dampened consumer sentiment and dismal performance in what is usually a strong quarter, we are pessimistic of the industry’s total volume for FY15-16; hence we cut our TIV growth to 1% for the period. We adjusted margins downwards by 0.5-ppts to reflect higher expenses to be incurred on the back of A&P spending to boost sales in the coming quarters. As such EPS for FY15-16 is reduced by 3-4%.

Rating

HOLD

Positives

• 1) Relatively 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

We are raising our TP by 4.5% to RM13.07 from RM12.50 as we roll forward our DCF valuation and adjusted our beta assumption to reflect the latest beta. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 26 May 2015