Result

• Within Expectations – 9M17 core PATAMI of RM182.2m (+15.4%) came in within expectations, accounting for 74.5- 76.5% of our and consensus full-year estimates.

Deviations

• Broadly in line.

Dividends

• None declared.

Highlights

• Yoy: 3Q17 core PATAMI surged 40% to RM61.0m (from RM43.6m a year ago) mainly due to higher sales from Carlsberg flagship brand Carlsberg Green Label and Carlsberg Smooth Draught as well as other premium brands in the Malaysia market.
• Qoq: 3Q17 core PATAMI rose 13.6% to RM61.0m due to better performance from the Malaysian market (which revenue grew 13.8%), which more than mitigated poorer sales in Singapore (which revenue declined 14.6%)
• YTD: 9M17 core PATAMI increased by 15.4% to RM182.2m on the back of stronger sales volume in both Malaysia and Singapore markets, particularly from Carlsberg Green Label, Carlsberg Smooth Draught, Kronenbourg 1664 Blanc, Somersby Cider and Connor’s Stout Porter in Malaysia

Outlook:

• ‘Premiumization’: Carlsberg guided that premium brands (which include Kronenbourg 1664 Blanc, Somersby Cider and Connor’s Stout) are growing strongly (which saw its EBITDA margin expanding from 18.2% in 9M16 to 19.2% in 9M17).
• Legal drinking age: On 1 December 2017, the legal age of drinking was raised from 18 to 21 in Malaysia. We do not expect sales volume going forward to be significantly impacted by this change.
• Excise duty revision: We reckon that a hike in excise duty is unlikely to occur in the short term given that 2018 is an election year. Note that Malaysia already has one of the highest alcohol excise duty globally, after Singapore and Norway.
• Russia 2018: Carlsberg is well positioned to benefit from the 2018 World Cup due to its long standing association with football. The time difference between Malaysia and Russia will see kick off starting at the ideal times of 6pm and 10pm locally, which coincides with ‘happy hour’.

Risks

• Risks to this stock arise from two venues: 1) overhang of the customs bill to the amount of RM56m for duties and penalties. 2) Prolonged soft consumer sentiment bounds total industry volume growth.

Forecasts

• Unchanged.

Rating

• We continue to like Carlsberg for its relatively high dividend yield, geographically diversified earnings base, resilient earnings, low capex requirements and its well-received portfolio premiumization drive.

Valuation

• We maintain our BUY call and TP of RM17.90 based on DCF (WACC: 8.0%; TG: 3.0%)

Source: Hong Leong Investment Bank Research - 04 Dec 2017