Carlsberg’s prospects is looking positive banking on its: (i) on-going growth story, yielding a 5-year FY20E CAGR of 9% versus HEIM’s 5%, (ii) gain in market share over HEIM, coupled with (iii) stable dividend yield of c.4% which could offer some degree of defence amidst the current market uncertainty. BUY with a TP of RM28.70 as we ascribed an unchanged PER of 27x.

Carlsberg’s premium portfolio sustained double-digit volume growth (+22% versus Core Beer Brand’s +5%) in 1H19. That said, we believe the group is well-positioned to tap onto the growing trend for premiumisation which will translate into bigger market share and volume growth. Notably, the group prides themselves with its fastest growing premium brand, 1664 Blanc (1H19 volume growth of 55%), thanks to its unique taste and the lack of direct peer in the market, which should continue to serve as a key driver for the premium segment moving forward.

Meanwhile, we also take comfort in the group’s steady Singapore operation (historically taking up c.30% of the group’s total operating profit). This is premised on: (i) a more favourable forex translation, (ii) relatively stable demand, coupled with (iii) the delay of the EU Free Trade Agreement to 1Q20 which should ease foreign competition, at least for this year. On the other hand, its Sri Lanka associate which is the market leader in its region (control c.80% of the local market share) has also seen stabilising numbers post-recovery from its flood incident in FY16.

Going forward, the group is also poised to benefit from a potentially improved operating environment mainly in East Malaysia (from previous c.30-35% to c.25-30%), as authorities appear more effective in clamping down contraband beer. This will most likely divert demand back to the legal market, thus benefitting the brewers. On top of that, we are also of the view that further excise duty hike in the upcoming Budget 2020 is unlikely, as this would only worsen the illicit trade market situation.

Source: Rakuten Research - 4 Oct 2019