CAB’s 1QFY13 earnings  weakened  3.5%  y-o-y  to  MYR50.5m,  despite improving  sales  and  margins  for  its  Malaysian  operations,  as  weaker contributions  from  Sri  Lanka  and  Singapore  dragged  down  overall profitability.  While  the  industry’s  outlook  remains  benign,  talks  of  a potential  beer  excise  duty  hike  has  resurfaced  post-election.  Its valuations also appear rich at current levels. Maintain NEUTRAL, with a higher FV of MYR15.73.

-  In  line.  Carlsberg  (CAB)’s revenue grew  to  MYR470.8m  (+3.7%  y-o-y, +39.9%  q-o-q)  in  1QFY13  as  stronger  premium  beer  sales  led  overall growth while seasonally stronger volumes due to the Chinese New Year lifted  sequential  profitability.  Earnings,  however,  contracted  3.5%  y-o-y (though  +24.9%  q-o-q)  to  MYR50.5m  amid  a  lower  associate contribution  and  profit  from  its  Singaporean  operations.  The quarter’s earnings  represent  24.6%  and  24.2%  of  our  and  consensus  estimates 
respectively. 

- Foreign  businesses  disappoint.  CAB’s  Malaysian  operations performed  commendably,  with  1QFY13  revenue  and  EBIT  growing  to MYR368.1m (+3.7% y-o-y, +53.4% q-o-q) and MYR52.5m (+6.1% y-o-y, +101.4%  q-o-q)  respectively.  However,  contribution  from  Lion  Brewery, its Sri Lankan associate, plunged to MYR0.8m (-66.6% y-o-y, -54.8% q-o-q)  amid  difficulties  in  importing  products  due  to  capacity  limitations, which is expected to be resolved in 2HFY13. Its Singapore business also 
softened  despite  seeing  revenue  growing  to  MYR102.6m  (+7.2%  y-o-y, +6.3% q-o-q) due to a one-off cost write-back in 1QFY12.

- Maintain  NEUTRAL.  We  are  keeping  our  FY13  and  FY14  forecasts unchanged  but  are  raising  our  FV  to  MYR15.73  from  MYR14.12 previously as we: i) roll over our FCFF model valuation horizon to FY14, and  ii)  increase  our  terminal  growth  assumption  to  2.5%  (from  2.2% previously). FY13 dividend yields have compressed to 3.9%. Regulatory risks have also become a potential concern now that the general election is over, with talks about the first beer excise duty hike in seven years to be implemented later in the year resurfacing.

Source: RHB