This article first appeared in The Edge Financial Daily on August 21, 2017

Carlsberg Brewery Malaysia Bhd
(Aug 18, RM14.84)
Maintain hold with an unchanged target price (TP) of RM14.80: Carlsberg Brewery Malaysia Bhd’s (CAB) revenue for the second quarter of financial year 2017 (2QFY17) increased 4.1% year-on-year (y-o-y) to RM412.1 million, while core net profit ticked up 4.6% y-o-y to RM53.7 million. This brought its cumulative core earnings to RM122.2 million (after stripping out one-off gains from trade discount adjustments in Singapore of RM3 million and associate insurance compensation of RM4.2 million), which were within both our and the market’s expectations at 53% of full-year estimates. The group also declared a single tier dividend per share (DPS) of 10 sen (versus first half of FY16 [1HFY16] DPS: five sen), in line with our forecasts.

1HFY17 revenue rose 7.4% y-o-y to RM914.8 million thanks to better sales volume growth and improved product mix, as a result of premiumisation efforts. 1HFY17 earnings before interest and tax margin also expanded 2.1 percentage points (ppts) y-o-y to 19.4% on the back of improved cost management and better operating efficiencies. Accordingly, core net profit also grew 6.9% y-o-y in spite of higher effective tax rates (+2.2 ppts y-o-y) and higher associate losses of RM3.5 million (1HFY16: RM0.2 million).

On a quarterly basis, CAB’s revenue for the second quarter of FY17 (2QFY17) declined 18% quarter-on-quarter (q-o-q) because of lower sales growth for its Malaysia (-26.1% q-o-q) and Singapore (-0.9% q-o-q) operations, particularly due to the absence of any festive seasons during the quarter. Thus, in tandem with the decline in revenue, the group’s bottom line decreased by 9.6% q-o-q.

The group’s 25%-owned Sri Lankan associate Lion Brewery (Ceylon) Ltd (LBCP) reported a profit of RM2.5 million for 2QFY17, narrowing 1HFY17’s loss to RM3.5 million. Nonetheless, we understand that this was mainly propped up by a claim of insurance compensation amounting to RM4.2 million during the quarter and management has pointed out LBCP still remains operationally loss-making. Recall that LBCP only recommenced operations back in November 2016 after shutting down since May 2016 due to floods.

We make no changes to our FY17 to FY19 estimates. While we think that the group’s growth prospects have been fully priced in at current valuations, the stock’s merit still lies in its dividend yields, which remain appealing at 5.1% to 5.8%. — CIMB Research, Aug 17