Result

• Below Expectations - 3QFY15 PATAMI of RM141.43m came in below expectations, accounting for 68% of ours and consensus’s full year estimates , respectively.

Deviations

• Lower revenue contributions from Malaysia which was partially offset by greater contributions from Singapore operations.

Dividends

• None. Dividends are usually declared semi-annually.

Highlights

• Yoy: Revenue experienced a decline of 0.9% mainly due to the disposal of LHFB. Adjusting for LHFB’s impact , overall topline would have registered a growth of 4.5% in 3QFY15 which is mainly driven by its Singapore operations.

• Malaysian operations continue to drag earnings, recording a decline of 6.8% YTD (9MFY15: RM853.5m vs. 9MFY14: RM915.4m). This is primarily attributed to the revenue impact from the disposal of LHFB back in May and the later timing of trade stock up ahead of the 2016 National Budget . Adjusting for the impact of LHFB, revenue for 9MFY15 declined by 4.6%.

• Qoq: Carlsberg recorded a marginal 0.83% gain in revenue of RM405.6m. The marginal improvement is attributed to stronger contributions from Singapore, which was partially offset by the disposal of LHFB. PAT grew by 27.6% on the back of the low base effect in 2Q15.

• YTD operations in Singapore continue with its strong momentum, growing 29.8% yoy with total revenue of RM383.9m (9MFY14: RM295.85m). This is on the back of higher sales volume, improved price/mix and the stronger SGD vs. MYR. Operating profit improved by 55.3% to RM69.7m

• We expects domestic market conditions in 2015 to continue to remain challenging, especially with consumers adjusting to the new pricing environment post-GST.

Risks

• Despite management thanking the government for not raising Excise Duty for Alcohol in the 2016 National Budget, we remain cautious on the potential hike given the unexpected and substantial hike in Excise Duty for the tobacco sector post budget.

Forecasts

• 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 well as softer contributions from the Malaysian operations in FY15. As such EPS for FY15 is reduced by 3%.

Rating

BUY

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 reduce our TP to RM13.05 from RM13.07 but upgrade our call to BUY given the selldown in share price. Despite tougher operating environment, yields of 5.8-5.6% are still compelling for FY15-16.

Source: Hong Leong Investment Bank Research - 1 Dec 2015