GAB  still  dominates,  but  Carlsberg  has  something  special.  GAB  estimates  show that Carlsberg is still on a weaker footing compared its larger counterpart in Mainstream and Premium beer segment, which combined commands 93% of the malt liquor market (MLM).  However,  Carlsberg  owns  the  lion  share  of  the  Super  Premium  segment,  a segment  that  albeit  still  small  but  can  open  doors  for  its  mainstream  Green  Label  and premium Asahi brands.

Super Premium domination. With Malaysia's ruling that an on-trade outlet will only be able  to  sell  the  beers  of  either  GAB  or  Carlsberg,  Carlsberg  is  looking  to  secure distributorship for more outlets by focusing its efforts on bringing in more super premium and  thematic  beers  and  heavily  market  them  to  create  brand  equity.  Volume  for  its bread  and  butter  Green  Label  will  then  be  lifted  with  more  secured  distributorships  as the outlets will be obliged to serve the Green Label as its mainstream beer. Asahi sales will  also  be  similarly  boosted,  since  the  outlet  will  not  be  able  to  retail  the  Japanese beer's most direct competitor, Heineken.

Dedicated  unit  to  seek  new ideas. With that strategy in mind, Carlsberg's subsidiary Luen  Heng  is  tasked  to  bring in  new  and  exciting  brands into  Malaysian borders.  GAB does not have dedicated unit of such kind. Carlsberg's Super Premium portfolio is thus much more extensive than GAB's.  The  Super  Premium  beers  will  unlikely  cause  the same positive trickle-down effect on the off-trade channel, however.

Maintain  BUY.  We  are  raising  our  Carlsberg  FY12  and  FY13  earnings  forecasts  by 4.9%  and  6.2%  respectively  following  a  strong  performance  from  its  Singaporean operations and our expectations of a better product mix moving forward. As a result, our FV  is  raised  to  RM13.51,  based  on  our  FCFF  model  (WACC:  7.6%,  terminal  growth: 2.2%).  Carlsberg  is  definitely  making  a  determined  comeback  with  its  Asahi  and especially Kronenbourg brands. Exposure to Singapore following its 2009 acquisition  of
Carlsberg's Singaporean operations has  also  opened  the  window  for  exposure  to  the higher beta, more tourism-centric beer consumption in the city state.

Gaining ground. GAB believes that Asahi holds a 5% market share in the Premium category over the past year,  while  Carlsberg  estimates  that  the  Japanese  beer  currently  holds  a  ~15%  market  share  following aggressive marketing efforts that kicked off in April 2012.  The two breweries define 'Premium' differently, as GAB  includes  Guinness  in  the  segment  while  Carlsberg  likely  just  refers  this  to  just  the  premium  lagers. Nonetheless, Asahi's market share gains  over  the  past  few  months  are  stellar  given the beer's relatively recent entry into the market. Carlsberg's goal is to capture 20% of the Premium lager market. Under GAB's definition, the Premium category has a 23% share of Malaysia's MLM volume.

GAB  still  the  largest.  Based on GAB's own estimates, GAB currently owns the lion's share  of  most segments  with  the  exception  of  the  Super  Premium  segment.  (see  Figure  1).  Tiger  edges  Carlsberg marginally in the bread and butter Mainstream category while Guinness and Heineken dominate the lucrative Premium market. Having that said, some level of bias in GAB's data is very much unavoidable, but Carlsberg does not provide comparable figures for analysis. Nonetheless, even based on GAB's figures, Carlsberg has a large lead in a segment that opens doors for its other beers. That segment is the Super Premium segment.

Super  Premiums  a  Mainstream  gateway.  Following a repackaging initiative for Carlsberg's traditional Green  Label  in  2QFY11,  the  company  has  since  focused  its  advertising  and  promotional  expenses  on boosting  the  value  of  its  Premium  and  Super  Premium  brands.  The  aim  for  sourcing  various  Super Premiums and exotic imported brands and building brand awareness is to secure distributorship for more on-trade  outlets  (as  these  are  only  able  to  sell  beers  from  one  of  the  two  breweries  in  Malaysia).  With  more secured  outlets, sales  volumes  for  its mainstream  Green  Label  will  also  be  indirectly lifted  as  these  outlets will be obliged to offer Carlsberg instead of GAB's Tiger as its mainstream beer. Off-trade channels, such as
supermarkets and grocery stores, will likely be unaffected.

Sourcing the next Super Premium. To expand its Super Premium portfolio, it has a dedicated subsidiary named Luen Heng that focuses on bringing in new brands into Malaysia; GAB currently does not have such a unit. The mainstream segment accounts for 70% of Malaysia's malt liquor market (MLM)  volume and the Green Label represents ~80% of Carlsberg's total volume.

Asahi  the  challenger.  While the Super Premium and thematic brands under Carlsberg's stable  are positioned  to  bring  the  entire  Carlsberg  portfolio  to  more  on-trade  outlets,  the  company  intends  to  make Asahi a significant force in the Premium segment, a segment that is still very much dominated by Heineken. Malaysian law, which requires each outlet to choose only GAB or Carlsberg as their sole beer supplier, will help  boost  Asahi's presence. A Carlsberg-selling  outlet  is  not  able  to  retail competitor GAB's Heineken, thereby limiting competition for the Japanese beer. Nonetheless, it seems very plausible that consumers in a Carlsberg  outlet  will  bypass  Asahi  and  opt  for  either  the  mainstream  Green  Label  or  the  Super  Premium brands. We believe Heineken is still a beer with far superior brand equity over Asahi.

GAB  -  Steady  track  record.  GAB has been the country's dominant beer producer since 2007 and has continued to increase its market share (estimated FY11 market share at ~58%). The company has managed to gain market share every year over the past 10 years, with earnings contracting just once in 2007 during the 2001 ' 2012 period. Its bottomline has grown at a 12.2% CAGR over the past 11 years.

Carlsberg - Making a comeback. Carlsberg, meanwhile, is making a comeback by bringing new brands to Malaysian shores. Despite losing market share in the past, it is successfully making inroads into the premium beer segment through Asahi and Kronenbourg, which is now still very much dominated by GAB's Heineken. Its acquisition in 2009 of Carlsberg's Singaporean operations also opened the door for exposure  to  the higher beta, more tourism-centric beer consumption in the city state.

Maintain  BUY.  We  are  raising  our  Carlsberg  FY12  and  FY13  earnings  forecasts  by  4.9%  and  6.2% respectively following a strong performance from its Singaporean operations and our expectations of a better product mix moving forward. As a result, our FV is raised to RM13.51, based on our FCFF model (WACC: 7.6%, terminal growth: 2.2%). In line with Carlsberg's aim to fill in the gaps within its portfolio, the company has introduced a Swedish apple cider called Somersby in back in June. Somersby is said to be a sweeter-tasting competitor comparable to GAB's cider Strongbow.

Source: OSK