News  Carlsberg announced that it has received two bills of demand from Selangor State Director of Royal Malaysia Customs on 19 September.

 The demands include: (1) Excise duty amounting to RM35.7m and (2) Sales tax amounting to RM13.8m and penalty amounting to RM6.9m, both for the period of 1 July 2011 to 14 January 2014.

 The Group does not admit to the liability on the demands.

Comments  Management indicated that they will be seeking advice of its legal and taxation team before making the next move.

 We were taken by surprise with the bills of demand which amounted to RM56.4m over a period of 30 months. The claims would drag down FY14E net profit of RM192.7m by 30% if CARLSBG is to recognize the full amount of the excise duty and sales tax.

 No further information was disclosed by the management at this juncture but we will closely monitor the development of the dispute.

Outlook  The bills of demand could bring significant financial impact to CARLSBG, but we expect stern effort from the Group following the denial of the claims. At this point of time, we reiterate our neutral view on CARLSBG.

 The outlook moving forward could be dented by the persistent soft consumer sentiment on the back of higher costs of living while the imminent implementation of GST is also expected to have negative impact on consumer spending. Meanwhile, the expanding portfolio particularly in the premium and super-premium market is expected to sustain the earnings growth in midst of the challenging operating environment.

Forecast  We leave our earnings forecast unchanged pending further development of the dispute.

Rating Maintain MARKET PERFORM

Valuation  Maintain our TP of RM12.21 based on 18.5x FY15E PER, on par with its 3-year mean PER.

Upside is limited but dividend yield of 5% is expected to support the share price.

Risks to Our Call Better-than-expected results of tackling contrabands beers.

Source: Kenanga