Carlsberg (CAB) reported a decent set of numbers for 1Q19; earnings were in line with expectations, accounting for 29% of both our and the consensus FY19 estimates. Core earnings increased by 7% yoy, driven by 15% yoy revenue growth which was attributable to solid sales performances both locally and in Singapore, although this was partially offset by higher commercial spending during the quarter. We trim our FY19-21E EPS by 1% and roll forward our valuation base to 2020E to arrive at a higher TP of RM24.60. Current valuations look fair, with 2019-21E yields of 4.1-4.8%. Maintain HOLD.

Within Expectations

CAB’s 1Q19 core net profit grew 7.0% yoy to RM87.2m, as revenue rose by 14.6% to RM659.9m (adjusted for SST price hike) on the back of a successful Chinese New Year (CNY) sales campaign which led to doubledigit sales growth in both Malaysia (+16% yoy ex-SST) and Singapore (+10.7% yoy). Locally, demand growth was sustained across all key product segments and especially for the premium brands; trade loading was likely boosted prior to a price revision in April. A dip in the operating margin (-1.6ppts yoy) partially offset the strong top-line performance, however, as higher commercial-related investments were recognised during the quarter. We note that Q1 earnings typically account for c.30% of the full year, due to CNY falling in Q1. DPS for 1Q19 stood at 21.5sen (1Q18: 20sen).

Margin Pressure Likely to be Contained

Following CAB’s local price hikes of 3%-6.2% starting from April – mainly to pass on higher raw material and packaging costs – the operating margin should be preserved, while the group has fully hedged its malt and barley unit costs for the rest of the year. There could be a slight dampening impact on domestic volume sales growth, as there have been three price hikes within a year. On the flip side, continuing efforts by the government to clamp down on contraband beer could potentially shore up demand.

Maintain HOLD

We trim our FY19-21 EPS forecasts by 1% to factor in the recent price hike and annual report figures. We raise our 12-month DCF-derived TP to RM24.60 (from RM23.00) after rolling our valuation horizon to 2020E, and maintain our HOLD rating. At the current level, CAB offers FY19-21E dividend yields of 4.1%-4.8%. Upside/downside risks: (i) Higher/lower-thanexpected volume growth; (ii) improving/weaker consumer spending; and (iii) lower/higher-than-expected production costs.

Source: Affin Hwang Research - 17 May 2019