Carlsberg Brewery (M) Bhd
(Nov 29, RM13.82)
Maintain neutral call with an unchanged target price of RM14.69: We like Carlsberg Brewery (M) Bhd for its relatively high dividend yield, diversified geographical earnings base, resilient earnings and low capital expenditure requirements. 
 
Nonetheless, in the near term, we expect Sri Lanka to be loss-making and domestic subdued sentiments to bound volume growth.
 
Year to date, revenues for the nine months ended Sept 30, 2016 (9MFY16) was flattish, growing 0.6% year-on-year (y-o-y) before adjusting for the Luen Heng F&B Sdn Bhd divestment.
 
This is largely attributed to stronger contributions from both Singapore and Malaysia operations. Higher domestic sales in Malaysia and Singapore, coupled with higher exports to Sri Lanka, effective cost management and higher profits from Maybev Pte Ltd delivered core profit growth of 7.4% y-o-y.
 
Y-o-y revenues contracted by 3%, namely on the back of weaker consumer sentiments in Malaysia. Revenues from its Malaysian operations declined 7.6%, whilst Singapore saw revenues increasing 5.3% from volumes. 
 
Operating profits declined 27% due to greater price discounts to clear old inventory and higher marketing expenses. Group profits declined 29.7% y-o-y.
 
The management guided that high alcoholic beer such as Skol Super, Royal Stout and Special Brew, which had upward price revisions circa 1.3% in July, have seen a decline in sales.
 
However, we are of the opinion that this is a knee-jerk reaction to the recent price and product revision. 
 
We expect domestic market conditions for the remainder of 2016 to remain challenging. Nonetheless, the group should be able to deliver a good performance on demand inelasticity and the upcoming festive and holiday period.
 
We continue to advocate that the duty hike effect is nullified by the potential to reduce the alcohol by volume or “water down” beers under the new excise structure. — Hong Leong Investment Bank Research, Nov 29