Period  2Q14/1H14

Actual vs. Expectations CARLSBG’s 2Q14 net profit came in at RM40m (up 30% YoY, down 23% QoQ), while revenue grew marginally by 3% to RM356m, which lifted 1H14 revenue and net profit to RM802m and RM92.4m, respectively. Hitting 48% of our forecast and consensus, the net profit is inline with expectations.

Dividends  The Group declared a DPS of 5 sen (vs 2Q13:5sen), inline with our full-year expectation of 62.5 sen. We expect the Group to declare another 57.5 sen in 4Q.

Key Results Highlights YTD, revenue declined marginally by 2% but the net profit managed to inch up by 13% to RM92.4m from RM81.4m thanks to the better performance of its Singaporean operations, which saw a big jump of 31% in operating profit contribution to RM24.9m.

 QoQ, revenue dipped 20%, which was followed by a decline in net profit of 23% to RM40.4m. That was mainly due to the

strong base effect as the sale in the previous quarter was boosted by the usual spike-up in demand for the Chinese New Year festivities.

 YoY, the revenue growth was flattish at 3% while net profit surged 28.7% to RM40.4m thanks to the effective cost management. Geographically, its domestic operations saw a 6.5% drop in sales on the back of subdued consumer sentiment, but things were rosier in Singapore where the Group managed to grow sales by 41.9% following the completion of the stock rationalisation program in 1Q14.

Outlook  Moving forward, the Group expects the soft consumer sentiment to persist judging from the hike in cost of living. The imminent implementation of GST is also expected to further dent the consumer spending, particularly the discretionary spending.

 Meanwhile, we expect the expanding portfolio of the Group’s brands especially in the premium and super-premium market to sustain its revenue growth in the midst of challenging operating environment.

Change to Forecasts We made no changes to our earnings forecasts.

Rating Maintain MARKET PERFORM We maintain our neutral view on the Group as earnings growth moving forward will be limited by the subdued overall industry outlook and the lack of catalyst in stimulating the industry. However, we expect the dividend yield of <5% to support the share price.

Valuation  Target Price is unchanged at RM12.21. We continue to value CARLSBG at 18.5x FY15 PER, which is on par with its 3-year mean PER.

Risks to Our Call Deteriorating consumer sentiments.

 Higher-than-expected operating costs.

Source: Kenanga