Period  4Q13/FY13

Actual vs. Expectations CARLSBG recorded 4Q13 net profit of RM64.0m (+58.2% QoQ, +66.6% YoY), bringing FY13 NP to RM183.9m (-4.0% YoY). The full year net earning was well above expectations, beating the consensus' numbers by 11.3% and ours by 17.3%, respectively.

 The stronger-than-expected earning was largely due to a robust 4Q13 during which effective roll-out of efficiency programs resulted in lower operating costs.

Dividends  A Final and Special single-tier dividend of 56.0 sen was declared, bringing the full year net dividend to 61.0 sen (representing 4.8% net yield).

Key Result Highlights YoY, 4Q13 Group revenue increased by 15.2%, underpinned by higher revenue from the Malaysian operations (+21.0% YoY) which was more than sufficient to offset the slightly lower contribution from the Singapore operations (-4.2% YoY). The strong revenue growth in Malaysia came amid a trade stock-up prior to the National Budget announcement as well as improved sales due to year-end festivities and successful consumer campaigns. In contrast, revenues from Singapore were affected by a deliberate stock rationalization program and softening of demand in a competitive market. Regardless, CARLSBG registered strong net profit growth of 58.2%, owing to lower operating costs, which led to a 4.5ppt net margin expansion from 12.0% in 4Q12 to 16.5% in 4Q13.

 For the full year, the strong performance in 4Q13 positively impacted total Group revenues which also helped to narrow the decline in FY13 revenue to just 1.9% YoY (RM1,555.1m). Improved commercial execution during the year and a positive portfolio mix helped spur a marginal 0.6% YoY revenue growth in the Malaysia although overall Group revenue was affected by the stock rationalization program and competition from cheaper parallel imports in Singapore (9.5% drop in revenue from the Singapore operations). FY13 bottom-line was also impacted further by higher depreciation, interest expense and tax, which consequently led to net profits declining by 4.0% YoY.

Outlook  An expanding portfolio of brands, particularly the premium and super-premium beers are expected to underpin revenue growth despite the challenging operating environment.

 At the same time, the Singapore operations are back on track following the stock rationalisation program which has now been completed. Combined with the effective roll-out of efficiency programs, we expect operating margins to improve in FY14.

Change to Forecasts We are revising our FY14E and FY15E operating margins upwards by +1.7ppt and +2.1ppt, respectively, to account for lower operating expenses. Consequently, our FY14E net profit has been increased by 12.5% and 15.1% to RM199.1m-RM218.5m, respectively.

Rating Upgrade to MARKET PERFORM.

Valuation  We increase our DCF-base target price from RM11.94 to RM13.07 (WACC: 8.7%, terminal growth: 1.5%) following our upward revision in earnings estimates.

Risks to our Call  A higher-than-expected excise duty hike, input cost and decline in its market share.

Source: Kenanga