Carlsberg (CAB)’s FY17 core earnings of RM221m (+8.1 yoy) came in slightly below our and consensus expectation, accounting for 87% and 94% of FY17 estimates. The disappointment was caused by a oneoff trade offer adjustment of RM27m in its Singapore operations. Overall, FY17 saw 7% volume growth and we expect World Cup 2018 to support its growth in FY18. Dividend yield of 5.5% for FY18-19E remains attractive. Maintain HOLD with an unchanged TP of RM16.

FY17 Core Earnings Broadly Within Expectations

Revenue increased to RM1,768m (+5.3% yoy) on the back of a 7% and 2.4% yoy revenue growth in Malaysia and Singapore operations respectively. The growth was mainly driven by higher sales and better demand for premium beers in Malaysia. The premium brands like Kronenbourg 1664 Blanc, Somersby Cider and Connor’s Stout Porter continued to record double-digit growth in sales. Due to the favourable shift in preference and effective cost management, FY17 core net profit grew by 8.1% yoy to RM221m. However, this came in below expectations, mainly due to Singapore’s EBIT being dragged by an RM26.7m one-off trade offer adjustments. Excluding the adjustments, core net profit was broadly in line with expectations. CAB announced DPS of 77 sen, bringing FY17 DPS to 87 sen, as compared to 72 sen in FY16.

Improvement in Sri Lanka Operations

In 4Q17, profit from associates improved to RM2.68m (vs. RM0.62m in 3Q17) as Sri Lanka continued to recover from the flood impact back in 2016 and is now operating at optimal level. Management guided that the last tranche of flood insurance for its Sri Lanka operation will be c. RM5.6m and it should be received within the next few months. Also, management believes that while the total beer consumption was somewhat flattish in FY17, the legal industry’s volume increased by c. 3-4% due to Malaysian authorities’ effort in curbing contraband beer.

Maintain HOLD With An Unchanged TP of RM16.00

We maintain our forecast for FY18-19E and introduce FY20E earnings. We believe that CAB’s growth will likely be sustained by a gradual recovery in consumer spending and the World Cup event in June. We maintain a HOLD rating with unchanged DCF-based TP of RM16. Estimated dividend yields are still attractive at 5.5% for FY18-19E.

Source: Affin Hwang Research - 15 Feb 2018