Within Expectations

Carlsberg (CAB)’s 9M17 core earnings of RM170m (+7% yoy) came in broadly in line expectation, accounting for 67% and 71% of our and consensus’ full year estimates. 9M17 revenue increased by 7.5% yoy driven by healthy growth of 7-8% growth in both Malaysia and Singapore operations. We expect product premiumisation and effective cost management to sustain FY18’s growth. Dividend yields of 5.5-6.0% for FY17-19E are still attractive. Maintain HOLD with a higher TP of RM16 as we roll forward valuation horizon to FY18.

9M17 Core Earnings in Line With Expectation

Revenue increased to RM1,3383m (+8%) on the back of a 7% and 8% yoy revenue growth in Malaysia and Singapore operations respectively. The growth was underpinned by higher prices and better portfolio premiumisation. The premium brands like Kronenbourg 1664 Blanc, Somersby Cider and Connor’s Stout Porter continued to record double-digit growth in sales. Operating profit increased 10.6% yoy due to effective cost management and a better product mix. As such, 9M17 EBIT margin expanded by 0.5ppts yoy to 17.3%. 9M17 core net profit increased by 7% yoy to RM170m and was broadly in line with our and street expectation, accounting for 67% and 71% of full-year estimates. We expect stronger qoq growth due to the festive seasons in 4th quarter.

Margin Drag From Singapore Operation in 3Q17.

CAB’s 3Q17 EBIT declined by 15.5% yoy to RM50.4m. Although Malaysian operation EBIT increased 45% yoy, earnings was dragged down by a 83% yoy decline in Singapore’s EBIT. The decline was due to the trade offer adjustments amounting to RM18.2m. Excluding the one-off trade offer adjustments, CAB’s 9M17 EBIT would have increased by 19% yoy to RM242m instead. Profit from associates was RM0.6m in 3Q17 vs RM1.7m loss in 3Q16 which was affected by the floods. The improvement was attributable to recovery in Sri Lanka, Lion Brewery’s operations.

Maintain HOLD With Slightly Higher TP of RM16.00

We maintain our forecast for FY17-19 unchanged and we believe that CAB’s FY18 growth will likely be sustained by gradual recovery in consumer spending. We have a HOLD rating with a slightly higher DCFbased TP of RM16 (from RM15.45) as we roll forward valuation to FY18. Estimated dividend yields are still attractive at 5.5-6.0% for FY17-19E.

Source: Affin Hwang Research - 4 Dec 2017