Carlsberg (CAB) reported a commendable set of 1H19 results which accounted for 51% of both our and the consensus FY19 estimates respectively. Core earnings increased by 5% yoy, as organic sales grew 13% which was attributable to both local and SG operations, offset by higher A&P expenses and an uptick in raw material costs during the period. CAB still looks fairly valued for now, with decent FY19-21E yields of 4.1-4.8%. Maintain HOLD and TP of RM24.60.

1H19 Results Within Expectations

CAB’s 1H19 core net profit grew 5.3% yoy to RM153m as volume sales grew in all major segments across its core Carlsberg products (+5% yoy) and premium brands (Connors, Kronenbourg, Asahi, Somersby, +22% yoy). Geographically, organic revenue growth (+13.1% yoy) was also achieved both locally (+15.7% yoy) and in Singapore (+6.8% yoy) where management has continued to turn around its Singaporean operations after a switch-up in operational oversight starting from 2H18. Associate contributions, however, were lower at RM9.4m (1H18: RM11.0m), being partially affected by terrorist bombings in Sri Lanka. DPS for the quarter stood at 16.1sen (2Q18: 15.7sen).

Sequentially Weaker

CAB’s earnings were softer on a qoq basis (-25%) due to seasonality as the bump in Chinese New Year sales subsided over the quarter. For 2H19, we believe margins would improve from the easing of A&P spend which was focused in 1H19 on the relaunching of its core Carlsberg portfolio and investment in brand activation of its premium products alongside its recently launched Brooklyn Lager IPA.

Maintain HOLD

We leave our earnings forecasts unchanged as the group’s 1H19 financial performance was broadly in-line. Hence, we maintain our HOLD rating on CAB with an unchanged DCF-derived 12-month TP of RM24.60. At the current level, CAB offers decent FY19-21E dividend yields of 4.1%-4.8% although PE valuations look fair, in our view. Upside/downside risks: (i) Higher/lower-than-expected volume growth; (ii) improving/ dampening consumer spending; and (iii) lower/higher-than-expected production costs.

Source: Affin Hwang Research - 16 Aug 2019