3Q15 results came in below our estimate (69% of our previous forecast) while falling in line with consensus at 71%. Maintain NEUTRAL with a trimmed DDM-based MYR11.70 TP (from MYR11.90, 3% upside) as we anticipate flattish 2-year CAGR of 6% amid declining consumer sentiment heading into 2016. The stock offers decent FY16F-18F dividend yields of 5.9-6.6%.

Below ours but in line with consensus. Carlsberg’s 3Q15 core profit of MYR56m (+26.2% QoQ, -0.6% YoY), brought 9M15’s to MYR147.5m (-0.8% YoY). After stripping out a MYR9.7m forex gain, the results were below our expectations but in line with consensus at 69% and 71% of earnings estimates respectively. For the quarter, revenue growth was flat both QoQ and YoY. Adjusting out for the Luen Heng F&B SB (LHFB) divestment, a revenue drag of 3% YoY arose from its Malaysia operations. Singapore operations posted an impressive 21.8% YoY growth on higher volume sales and contributions from the MayBev Pte Ltd buy. As expected, no interim dividend for the period was declared.

Malaysia operations drag on margins. Local operations experienced an operating margins contraction due to higher raw material costs resulting in quarterly operating profits slumping 22% YoY. For the quarter, effective cost controls and stronger SGD drove an 8.2ppts margins expansion to 25.3% (3Q14: 17.2%) as operating profits grew 80% YoY. Overall, earnings contracted 1.5% as the bulk of its earnings are largely attributed to Malaysia, outweighing the strong performance of Carlsberg’s Singaporean operations.

Forecasts and risks. We trim our earnings by 3% for FY15F/FY16F/17F in view of slower than expected sales. Key risks to our forecasts include the outcome of the unresolved bills of demand with the Royal Malaysian Customs (RMC), a potential excise duty hike and slower consumer spending heading into 2016.

Investment case. We maintain our NEUTRAL call on Carlsberg with a lower DDM-derived MYR11.70 TP (from MYR11.90) after trimming our forecasts. Given that its implied P/E of 16x 2016F EPS is close to the 5-year average P/E trading band of 17x, we believe Carlsberg is fairly priced at this juncture, with a flattish 2-year CAGR of 6%. The stock offers decent FY16F-18F dividend yields of 5.9-6.6%, which should help support the share price.

Financial Exhibits

SWOT Analysis

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 Research - 1 Dec 2015