We came away from CARLSBG’s post-FY14 results’ briefing, which hosted more than 20 analysts and fund managers, feeling neutral-to-slight positive. Group Managing Director, Mr. Henrik Juel Andersen, shed insights on the Group’s plans moving forward as well as the diagnosis of FY14 results. The commendable FY14 earnings was driven by price increase and better product mix with industry volume on downtrend, while the Group is looking to further improving its efficiency to sustain the earnings margins; premium brands would be given more focus whereas core Carlsberg brand will continue leveraging on the association with the football scene. Post-briefing, we made no changes to our earnings forecasts. Reiterate MARKET PERFORM with unchanged Target Price of RM13.23, based on unchanged 18.5x PER FY15E, which is on par with -0.5SD over 3-year mean.

Commendable growth despite challenging environment. To recap, CARLSBG reported FY14 net profit growth of 15% to RM211.6m on the back of higher sales revenue amounted to RM1.6b (+5.1%). While the Group indicated that the overall malt liquor market (MLM) experienced a slight decline in consumption volume, the sales growth was driven by price increases and more favourable product mix. Meanwhile, operating margin improved by 1.1ppt to 16.2% thanks to the better product mix as well as better operational efficiency, which had reduced operating costs by RM40m.

Efficiency to protect margins. Looking forward, earnings growth would be underpinned by cost management through an effective supply chain operational efficiency as well as being effective in commercial execution by targeting more on equity-building activities that drive profitable volumes. In view of the Price Control and Anti- Profiteering Act that forbid price increase for better profitability in Malaysia for 18 months in conjunction of GST, operating efficiency would be essential in protecting earnings margin. The last price increase was in December 2014 with the quantum of 3%, after the price increase of 3.5% in February 2014 to factor in the excise duty hike.

Double-pronged approach. Besides that, CARLSBG also aims to grow its profitability through more favorable product mix which we believe can be achieved with aggressive marketing campaigns that bring more awareness and exposure to its core premium brands, including Kronenbourg, Somersby and Corona. Meanwhile, the Group is also poised to continue to leverage on global sponsorship of Barclays Premier League to strengthen the association of Carlsberg with football which we think will provide some competitive edge in the mainstream segment against its competitors.

Reiterate MARKET PERFORM with unchanged Target Price of RM13.23. The TP is based on unchanged 18.5x PER FY15E, which is on par with -0.5SD over 3-year mean. TP offers limited upside (7.3% in total, including capital gain and dividend yield) from last closing price, but we expect the final dividend of 66 sen/share, which goes ex on 30th April 2015 to provide support to the share price. Strong 1Q15 results are anticipated just before the implementation of GST considering the better timing of Chinese New Year vis-à-vis 1Q14 and the effect of price increase in Dec 2014. 

Source: Kenanga