Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on March 10, 2016.

 

Carlsberg Brewery Malaysia Bhd
(March 9, RM13.50)
Upgrade to buy with a higher target price (TP) of RM14.20:
Into financial year 2016 (FY16), we expect Carlsberg Brewery Malaysia Bhd’s Singapore operations and other export sales to help support growth, while also acting as a buffer against potentially more subdued domestic operations on weaker consumer sentiment.

Our earnings forecasts are unchanged. With reduced regulatory risk post the recent excise tax hike, we raise our discounted cash flow-based TP to RM14.20 (up by RM1.20).

Our revised TP implies 18 times FY16 price-earnings ratio, which is just slightly above its five-year mean of 17.7 times.

We upgrade Carlsberg to a “buy”. Its FY16 dividend yield of 5.8% adds to its merits.

Management shared with us that the strong FY15 Singapore revenue growth of 32% was driven by improved contributions from MayBev Pte Ltd, increased sales volumes and a positive currency impact.

The Singapore market staged a quick rebound following headwinds in the first half of 2015 (for example, the withdrawal of beer promoters from certain hawker centres and implementation of partial restrictions on alcohol sales).

On the flip side, its Malaysian operations saw revenue decline 9% year-on-year, mainly due to a revenue loss from its divestment of Luen Heng F&B Sdn Bhd.

Effective March 1, post the change in the rate of duty on beer to RM175 per 100% volume litre, a litre of, for example, 5% alcohol by volume (ABV) will see an effective excise tax hike of 10%.

We understand that Carlsberg has passed on the increases via higher selling prices (up 2% to 5%) of its mainstream beers, while absorbing part of the excise tax hike for higher ABV beers (more than 5% ABV).

Into FY16, we expect its domestic operations to remain subdued on weaker consumer sentiment. Positively, its Singapore operations and other exports sales could help support growth, and act as a buffer against weaker domestic sales.

We understand that other export sales would include a new export contract starting FY16 for its Hong Kong affiliate. — Maybank IB Research, March 9

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