Carlsberg’s 1H15 core earnings of MYR94.7m (+2.6% YoY) were in line, making up 44% of our and consensus estimates. Maintain NEUTRAL, with a lower DDM-based TP of MYR11.90 (from MYR13.80, 7% upside) as we raise our COE assumption to 9% (from 8.2%) owing to macroeconomic headwinds. A single-tier DPS of 5 sen was declared for the quarter.

In line. Carlsberg’s 1H15 core earnings of MYR94.7m were in line, making up 44% of our and consensus estimates respectively. Although 1H15 sales rose 3.7% YoY, core earnings grew by a smaller proportion at 2.6%, largely due to the higher cost of raw materials as a result of the depreciating MYR. Headline earnings were weighed down by an exceptional loss of MYR15.8m, primarily attributed to the impairment loss of MYR12.5m on the disposal of Luen Heng SB and an associated MYR3.3m inventory write down. A single-tier 5 sen interim DPS was declared for the quarter.

EBIT margin improves. The company’s 1H15 EBIT margin marginally compressed to 14.3% from 14.9% in 1H14. Higher raw materials costs outweighed its Singapore operations’ stellar performance. The city state’s 1H15 sales and earnings grew 35% and 35.1% respectively, due to: i) a higher sales volume, ii) better pricing and product mix, and iii) a profit contribution from the MayBev Pte Ltd acquisition.

Forecasts and key risks. As the earnings are within expectations, we make no changes to our forecasts. Key risks to our forecasts include: i) weaker-than-expected sales volume, ii) an excise duty hike, and iii) potential payment of the MYR56.1m bills of demand (26% of FY15F earnings).

Maintain NEUTRAL with a lower MYR11.60 TP. We maintain our NEUTRAL call but lower our DDM-based TP to MYR11.90 (from MYR13.80) as we lift our COE assumption to 9% from 8.2% owing to macroeconomic headwinds. Carlsberg currently trades at 15.4x FY16F P/E, below its 5-year historical average of 17x P/E, while our TP implies a FY16F P/E of 16x. The stock offers dividend yields of 6.2-7% for FY15F-17F.