Carlsberg’s (CAB) 1H18 earnings grew by 12.8% yoy to RM145.4m, driven by continued growth for its mainstream and premium brands as well as sustained earnings recovery from its Sri Lankan associate. The results were slightly above our and consensus expectations (54% and 55% of FY18 estimates). 2H18’s earnings outlook will also remain upbeat, in our view. We tweak EPS forecasts slightly higher to reflect higher expected associate contributions, after observing Lion Brewery’s operational earnings revival for the quarter. The stock’s growth prospects looked largely priced-in already, however. Maintain HOLD with a revised TP of RM19.77.

54% of FY18 Estimates

CAB’s top-line grew by 5.4% yoy to RM963.9m in 1H18 (+7.5% MFRS15 adjusted), mainly on the back of strong growth recorded across its Carlsberg (+13% yoy) and key premium brands (+19% yoy) locally. Net margins also improved by 1.0ppts to 15.0%, lifted by the recovery in Lion Brewery’s associate contributions. Its Singapore operations came in soft however (revenue -13.1%, EBIT -38.4% yoy), as a result of lower volume sales, a stronger Ringgit as well as one-off trade offer reversal in 1H17. Overall, 1H18 earnings were slightly above our and street expectations. A second interim dividend of 15.7sen was also declared for the year.

2H18 Should Remain Buoyant

Sequentially, CAB’s 2Q18 net profit was 20.9% lower qoq due to seasonality, tracking a 24.3% decline in revenue. Going into 2H18, we expect CAB’s earnings to stay on course for a 2018E growth of 25%, buoyed by a brief tax holiday and World Cup 2018, strong rally in consumer sentiment (MIERCSI +41.9ppts to a 21-year high of 132.9 in 2Q18), as well as a full-year earnings recovery from its Lion Brewery associate after the freak flood accident. Meanwhile, our taxation assumptions are left intact as we await updates on the new SST’s impact to alcoholic beverages.

Maintain HOLD With Slightly Higher TP of RM19.77

While we preserve our operational forecasts, we tweak FY18-20E EPS by +3%/+3%/+3% to reflect higher associate contributions post-recovery. The stock remains to look fairly valued for now. Maintain HOLD with a marginally higher DCF-derived FY19E TP of RM19.77. Estimated dividend yields are still looking attractive however, at 4.8%-5.5% for 2018-20E. Upside/downside risk: Higher-than-expected volume growth/loss of market share to key competitors.

Source: Affin Hwang Research - 17 Aug 2018