Result

• Within expectations – FY17 core PATAMI of RM246m (+20%) came in within expectations, accounting for 101- 103% of ours and consensus full-year estimates, respectively.

Dividends

• Final + special dividend of 77 sen (4Q16: 67 sen) per share going ex on 2/5/18. Total dividend for FY17 amounted to 87 sen (FY16: 72 sen) per share, in line with our expectation.

Highlights

• QoQ: 4Q17 core PATAMI rose 4.5% to RM63.8m mainly due to better performance from associate company Lion Brewery (Sri Lanka) as the entity returned to profitability after flooding in 2016.
• YoY: 4Q17 core PATAMI surged 35.6% to RM63.8m (from RM47.1m a year ago) thanks to stronger sales of premium brands in the Malaysian market and better performance from Lion Brewery despite lesser revenue (as 4Q16 benefited from the earlier timing of CNY in 2017) as well as lower tax rate.
• YTD: FY17 turnover increased by 5.3% to RM1.8bn on the back of stronger sales in both Malaysia (+6.8%) and Singapore (+2.4%), particularly from, Kronenbourg 1664 Blanc, Somersby Cider and Connor’s Stout Porter in Malaysia. Outlook:
• 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 coincide with ‘happy hour’.

Risks

• 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 requirement 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 - 15 Feb 2018