Carlsberg’s (CAB) 9M18 core earnings rose 25% yoy to RM209m, underpinned by sustained domestic demand growth for its mainstream and premium brands, as well as the full recovery in the earnings contribution from its Sri Lankan associate. The results were broadly within our expectations but tracked above consensus. We trim our EPS forecasts slightly to reflect the short-term impact from the SST-driven price hike of 5.5%. The stock appears fairly valued, although FY18-20E dividend yields of 4.6-5.2% appear attractive. Maintain HOLD with a revised TP of RM19.50 (from RM19.77).

Broadly in Line

CAB’s 9M18 core net profit leapt 24.6% yoy to RM209.2m, primarily due to strong domestic top-line growth (+17.6%) recorded across its flagship Carlsberg as well as premium brands, alongside a full earnings recovery from its Lion Brewery associate in Sri Lanka after its freak flood disruptions. Net margins also improved 1.6ppts to 14.4%, albeit tempered by a lower earnings contribution at its Singapore operations (9M18 EBIT: -8.8% yoy), as a result of lower volume sales and a stronger Ringgit. The results came in within our expectations but tracked above consensus, accounting for 76% and 80% of FY18E estimates respectively. A third interim dividend of 16sen was declared for the quarter (9M18: 51.7sen).

Sequentially Better

On a qoq basis, CAB’s 3Q18 core earnings grew marginally by 0.4% despite sales growth of 18.6%, which we believe is due to the timing of commercial expenses on the domestic side. Separately, CAB’s Singapore operations appear to have stabilised (3Q18 sales and EBIT +4% qoq), although its outlook remains delicate due to the anticipated introduction of the European Free Trade Agreement in 2Q19 which will likely intensify competition due to cheaper imports of competing brands.

Maintain HOLD With Revised TP of RM19.50

We leave FY18E forecasts intact but trim FY19-20E EPS by 2.7%/2.4% to reflect the short-term impact from the SST-led price hike on volume sales. The stock looks fairly valued at current levels. We maintain our HOLD with a slightly lower DCF-derived TP of RM19.50. FY18-20E dividend yields of 4.6-5.2% appear decent, however. Upside/downside risk: Higher-thanexpected volume growth/loss of market share to key competitors.

Source: Affin Hwang Research - 30 Nov 2018