Review

• Carlsberg (M) Berhad’s 9MFY19 core profit of RM222.0mn came within ours and consensus full-year estimates at 75% and 73% respectively. The board declared a third interim dividend of 17.0sen/share (3QFY18: 16.0sen/share), bringing 9MFY19 DPS to 54.6sen/share (9MFY18 DPS was 51.7sen/share)

• 9MFY19 revenue improved 15.5% YoY to RM1.68bn (excluding SST impact, adjusted revenue was 10.7% YoY higher) underpinned by: i) volume growth across core beer and premium beer segment, ii) increase in ASP, iii) effective marketing investments, and iv) stronger distribution network. 9MFY19 associate contribution was RM14.7mn (+46.7% YoY from adj. associate contributions of RM10.0mn recorded in 9MFY18). 9MFY19 core earnings increased by a lesser quantum of 8.3% YoY due to heighten marketing investment from rebranding exercises.

• Malaysian operations registered revenue and EBIT growth of 19.1% YoY (to RM1.23bn) and 6.1% YoY (to RM210.8mn) respectively, supported by higher sales volume alongside premiumnisation drives. Likewise, Singaporean operations showed decent performance with revenue improving by 6.7% YoY and EBIT increasing by 9.4% YoY to RM449.7mn and RM69.8mn respectively.

Impact

• We make no changes to our earnings forecast.

Outlook

• Risk of a hike in Malaysia’s beer excise duties has been largely eliminated with government resonating that sin tax on alcohol has reached the level which any hike is unlikely to bring desirable addition to government’s revenue.

• Amid the challenging external business environment owing to uncertainty in macroeconomic situation, the group will continue to leverage on its new Danish-inspired identity for its flagship brand, Carlsberg alongside better packaging, which have received encouraging responds.

• The EU-Singapore Free Trade Agreement is anticipated to take effect by late-2019. This may pose a challenge to the Singaporean operations as the business environment is expected to become more competitive with cheaper duty-free imported products from Europe.

Valuation

• Upgrade to Hold from Sell with higher target price of RM28.70 based on DCF valuation (discount rate: 6.6%, g: 3.0%). The higher target price was a result of us lowering our risk-free rate assumption (to be consistent with our in-house forecast).

Source: TA Research - 27 Nov 2019