Carlsberg (CAB) reported a good set of results, with 1Q18 core earnings of RM81.5m (+24.4% yoy) coming in within our and consensus expectations (30.4% and 31.9% of FY18 estimates). The robust yoy growth was led by a strong festive performance recorded from its Chinese New Year sales campaign, better demand for its premium brands, as well as recovery in earnings contribution from its Sri Lankan operations. We expect the imminent GST abolishment as well as World Cup 2018 to further support growth in 2HFY18. We keep our earnings forecast intact while we roll forward our DCF-derived TP onto 2019E. Maintain HOLD with a higher TP of RM19.16.

1Q18 Earnings Broadly Within Expectations

CAB’s top-line grew by 9.1% yoy to RM548.5m in 1Q18, driven by a highly successful Chinese New Year sales campaign as well stronger demand for its premium brands. Regionally, results were a mixed bag, with its Malaysia and Singapore operations recording revenue growth of 19% and -12% respectively, the latter being attributed to reduced sales as well as strengthening of the Ringgit. Meanwhile, core net margin rose to 14.9% (+1.9ppts), lifted by the recovery in associates’ contribution from its Sri Lankan operations, which was mainly due to the final collection of its flood insurance compensation. CAB’s premium brands continued to perform well (+26% yoy). Overall, 1Q18 earnings (30.4% of FY18E) were within our expectations, with Q1 being CAB’s strongest quarter seasonally.

Highest Sequential Growth in Five Years

On a qoq basis, CAB’s revenue grew at its fastest pace since 1Q13, for both Group as well as its Malaysia operations (+27.6% & +39.5%). On the Malaysia side, while we expect the following quarters in to be softer, 2018E growth should still be supported by the month-long World Cup event in June, as well as consumer-led tailwinds arising from the abolishment of GST, revised fuel subsidies pledged by the government, as well as the recent recovery in consumer sentiment (MIERCSI +8.4 ppts to 91 in 1Q18). (Note: This Marks a Transfer of Analyst Coverage).

Maintain HOLD With Higher TP of RM19.16

We maintain our forecast for 2018-20E, while noting that earnings could surprise to the upside. We believe that CAB’s growth will likely be sustained by higher consumer spending, continued success of its premiumisation strategy as well as the World Cup event in June. We maintain a HOLD rating after rolling forward our DCF-based TP of RM19.16. Estimated dividend yields are still looking attractive at 4.5%-5.2% for 2018-20E.

Source: Affin Hwang Research - 18 May 2018