Within estimates. Carlsberg registered 2QFY12 revenue of RM383.4m (+11.0% y-o-y, -15.6% q-o-q) and earnings of RM37.7m (21.7% y-o-y, -27.9% q-o-q) as volume growth from its Premium and Super Premium beers improved profitability on a y-o-y basis through increased volumes and wider margins per litre of beer sold. In line with a seasonally weaker 2Q, revenue and earnings for the quarter predictably fell on a sequential basis as the Chinese New Year (CNY) festivities fuelled consumption in 4Q and 1Q. 1HFY12 revenue grew by 11.0% y-o-y, bringing YTD profits to RM90.1m (+12.7% y-o-y). The half-year earnings represent 53.0% and 49.4% of our and consensus forecasts.

The lion city leads the way. Carlsberg's Singaporean operations, established following its acquisition of Carlsberg A/S' Singaporean distributors in 2009, saw EBIT for the first six months of the year grow by 15.5% y-o-y, outpacing its Malaysian business' 10.4% expansion. As a consequence, operating profits from the city state now represent 27.0% of the company's total EBIT, a 1.0 ppt improvement from last year. We believe contribution from its Singaporean division is less skewed to CNY purchases early in the year compared to its Malaysian peer, given the island's tourism-centric consumption.

Going Super Premium. Estimates from direct domestic competitor GAB show that Carlsberg commands the lion's share of the local Super Premium market, at 75%. This segment has the highest price points though it represents just 2% of total volume consumption. However, the segment has seen consumption growing in leaps among the younger bar- and club-going crowd, largely dominated by Carlsberg's Kronenbourg and Hoegaarden brands. While Carlsberg has just a 5% market share of the Premium segment, its Asahi brand is allowing the company to  make further inroads into the segment traditionally dominated by GAB's Guinness and Heineken. This inevitably comes with steeper advertising and promotional expenses, although the urban young (who may be less prudent spenders) seem to be able to absorb the higher prices. The Premium segment constitutes a 23% market share of total malt liquor market (MLM) volume.

Maintain BUY. We are keeping our FY12 and FY13 forecasts unchanged, pending adjustments following its analyst briefing today. Our FV is thus unchanged at RM12.99, based on our FCFF model (WACC: 7.6%, terminal growth: 2.2%). GAB estimates show that other brewers (i.e. Carlsberg) command 39.7% of total domestic MLM volume in June 2011-June 2012. We await to hear what Carlsberg managing director Soren Ravn has to say about it in response.

Source: OSK