CAB’s  9MFY13  net  profit  of  MYR120m  (-21%  y-o-y)  was  within  our expectation  but  below  consensus  estimate.  The  weaker  profit  was primarily due to weak revenue and higher opex. We  maintain  SELL on the stock given its  waning dividend yield appeal and unjustifiably steep P/E  valuation.  Our  FV  is  unchanged  at  MYR11.31,  based  on  FCFF valuation.

• Within  expectations.  Carlsberg  (CAB)’s 9M13  net  profit of  MYR120m (-21% y-o-y)  was in line with our but missed street expectations, making up 72% and 67% of the respective full-year forecasts. During the quarter, earnings  slipped  37%  y-o-y  (+24%  q-o-q)  due  to  weaker  revenue  and higher  opex.  Notably,  its Malaysian operation  saw  slower sales volume on  the  back  of  slower  demand  for  beer  while  its  Singaporean  unit continued to face intense competition.
• Outlook.  Although the brewery sector was spared an excise duty hike for  the  eighth  consecutive  year  in  Budget  2014,  we  think  the Government’s other subsidy rationalisation  measures may dampen beer sales  volume.  In  fact,  the  demand  for  beer  has  been  declining  for  the past  two  reporting  quarters  of  2Q  and  3Q13.  That  said,  the  tourism sector  may  still  buffer  the  weak  domestic  beer  market  come  Visit Malaysia 2014 next year.
• Forecasts  and  risks.  Our forecasts  remain status quo  as CAB’s 9M13 results were  within  our expectations, while our malt liquor market (MLM) volume  growth  assumption  stays  at  1%,  with  the  company’s  target market share at  40%.  The key risks to our forecasts include: i)  stronger sales volume, and ii) lower-than-expected opex.
• Valuation  and  recommendation.  We maintain our SELL call on CAB, with an  FV of MYR11.31, based on FCFF valuation (WACC: 8.1%, TG: 2.5%). We opine that the stock’s dividend yield appeal is losing its shine while its steep P/E valuation is unwarranted. Furthermore, the  outlook for the  industry  does  not  look  very  promising.  Nevertheless,  CAB  has  a strong balance sheet,  generates  robust operating cash flow, as well as good corporate governance in place.

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Company Profile
Carlsberg (CAB) manufactures and distributes beer. Its key brands are Carlsberg Green Label, Asahi and Kronenbourg 1664.

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Source: RHB