- We re-affirm our BUY rating on Carlsberg Brewery Malaysia Bhd(Carlsberg) with a higher DCF-based fair value of RM11.50/share, vs. RM10.40/share previously (WACC: 9.2%). 

- Despite the stock's relative outperformance YTD, webelieve current share price has not fully reflected Carlsberg's full potential.We see long-term transformational earnings growth underpinned by the group'saspiration to become a regional manufacturing hub with a strong focus on importedlabels. Our LTG rate is tweaked upwards to 2.7% (+1ppt).

- Carlsberg is on schedule to add two more imported labels forin-house production in the next 3 to 6 months, in addition to locally brewed 'Asahi Super Dry'. The identified beersbeing 'Kronenbourg 1664' and 'Kronenbourg Blanc' originate from France, unlikeAsahi which has Asianorigins. 

- More importantly, local production of the labels yields higherprofitability given reduced transportation and logistics costs due to absenceof a RM5.00/litre import duty. Though cost savings is negligible at present, weexpect rising earnings contributions in tandem with higher beer volumes movingforward. As it is, draught production of 'Asahi Super Dry' for the mass marketis expected to commence soon over the next few weeks. Premium labels contributecirca 10% to group revenue.

- Given Carlsberg's idle brewing capacity and the stronger pricingpower imported labels command, we would not be surprised should the groupsecure rights for exports to other countries in the region, apart fromSingapore. As an indication, ASP for Asahi is ~10% higher than mainstream CarlsbergGreen Label, while Kronenbourg's is ~10% higher than Asahi's. 

- In the immediate term, the group may raise ASP by 3%-4% byend-1H to compensate for higher raw material costs which are up some 20% YoY.Fortunately, price of malting barley has been flattish and the group hassecured 2/3 of its raw ingredient requirements for FY12F. We also expect Carlsbergto intensify A&P in the coming months to leverage on 2012 Euro Cup, ofwhich the group is the official sponsor.

- Balance sheet is strong with net cash of RM50mil (FY11F) andfree cash flow yields of 6%-7%. Our conservative dividend payout assumption of70% p.a. implies an upside potential to our dividend yield of 5%-6%. Valuationsare also attractive at current levels, with the stock trading at only 6x P/B 'or at a 50% discount to peer Guinness Anchor Bhd (GUIN Mk Equity, Hold).