9M13 underperformed. Carlsberg’s 3Q13 net profit of MYR38m (-37% YoY, +24% QoQ) was below our expectation. 9M13 net profit of MYR120m (-21% YoY) was just 61% and 66% of ours and consensus full-year forecasts. The YoY drop in revenue was exacerbated by a decline in EBIT margin. We cut our FY13-15 earnings forecasts by 15- 16% pa, and our DCF-based TP by 14% to MYR11.70. Maintain HOLD.

Intense competition in Singapore. Group revenue declined 7% YoY in 9M13 to MYR1.17b mainly due to the weak performance in Singapore where revenue fell 11% YoY. The Singapore operations were pressured by the influx of cheaper imported beer on top of the group’s stock rationalization program which started in 2Q13 and continued into 3Q13. Carlsberg’s intent on protecting its market share by ramping up promotional activities has resulted in higher operating expenses. EBIT in Singapore plunged 45% YoY in 9M13 to MYR29m.

Malaysian operations affected by the National Budget. Revenue in Malaysia contracted 5% YoY in 9M13 due to the timing of the National Budget. The National Budget 2013 was held earlier in Sep 2012 while Budget 2014 was held in Oct 2013, resulting in pre-budget stocking-up activities one month earlier in 2012 than in 2013. As such, we do expect a stronger 4Q13 vis-à-vis 4Q12.

Outlook remains weak. We revise our MLM growth assumptions to factor in a 1% contraction in 2013 and a small 1-1.5% pa growth in 2014-2015, similar to what we have imputed for GAB. The weak consumption growth in Malaysia also implies that brewers have to incur higher marketing costs to drive sales.

Maintain HOLD. After imputing lower MLM growth and flattish EBIT margin assumptions (13-14%) for FY13-15, we now model a lower 4- 5% pa net profit growth for Carlsberg in FY14-15, while a decline in FY13 net profit – we estimate, by 14% YoY – seems inevitable. Our TP of MYR11.70 implies 21.7x PER and 4.6% net dividend yield in 2014.  

Source: Maybank Research - 19 Nov 2013