Period  3Q14/9M14

Actual vs. Expectations 9M14 net profit of RM148.7m (+24%) was within both our and consensus expectations at 73.9% and 77.2% of our, and streets’, full year forecasts.

Dividends  No dividend was declared, as expected. We expect DPS of 57.5 sen to be declared in 4Q14, making up our

DPS forecast of 62.5 sen for FY14 (5.2% yield). DPS of 5 sen was declared earlier in 2Q14.

Key Results Highlights YTD, 9M14 revenue grew marginally by 3.8% to RM1.2b. The Singapore division spearheaded the growth by recording impressive growth of 21.6% thanks to the stock rationalisation program and effective promotion activities. Local sales remained subdued due to the higher excise duty imposed, worsened by the persistent soft consumer sentiment. However, group operating profit managed to jump 21.3% to RM192.3m owing to higher cost efficiency as well as better product mix.

 QoQ, 3Q14 revenue amounting to RM307m (+15%) was boosted by the trade stocking in Malaysia prior to the Budget 2015 announcement, which saw local sales surging 14%. Sales growth in Singapore was more encouraging at 17.3% after the Group completed the acquisition of Maybev in April 2014, which is the distributor of Asahi beers as well as a number of liquor and spirits brands in Singapore. As a result, group net profit increased overwhelmingly by 40.6% to RM56.3m.

Outlook  We are comforted by the performance of CARLSBG with both Malaysia and Singapore market showing encouraging earnings numbers. While the sales could be inflated in 3Q14 by the World Cup events and stocking up activities, we do not expect a significantly weaker 4Q in view of the festive season and holiday period ahead.

 Better product mix and improved cost efficiency have managed to mitigate the effect of higher excise duty introduced in Malaysia since Nov 2013. Nonetheless, we view the efforts to clamp down contraband beers as the key to the overall growth of legal Malt Liquor Market (MLM) in Malaysia as well for CARLSBG.

 Thus, we maintain our neutral stance on CARLSBG despite the better results and positive outlook in the Singapore market with bigger concern to the sustainable growth of the legal MLM in Malaysia as well as particular risk of the ongoing tax dispute of RM56.4m which represents c.28% of FY15E net profit.

Change to Forecasts No changes to our earnings forecast.

Rating Upgrade to MARKET PERFORM (from UNDERPERFORM) Share price has retreated as much as 15% as market reacted negatively to the tax claims while upside potential has widened to 7% (1.8% capital gain, 5.2% dividend yield), thus we upgrade our call.

Valuation  We maintain our Target Price of RM12.21, based on unchanged 18.5x PER FY15E, on par with -0.5 SD 3-year mean PER.

Risks  Negative outcome of the tax claim dispute.

 Better-than-expected efforts from the authorities in contrabands beers clamp down.

Source: Kenanga