(Nov 16, RM7.26)
Maintain buy at RM7.09 with fair value of RM8.30: Carlsberg Brewery brewed a sequentially higher net profit of RM49 million for 3QFY11. Results for 9MFY11 came in well within both our, and market expectations, at 84% and 85% of full-year estimates.
The group recorded a solid top line growth of 16% quarter-on-quarter (q-o-q), in line with the strong malt liquor market (MLM) consumption trend seen in industry player Guinness Anchor Bhd.
This was led mainly by: (i) seasonal pre-budget speculative trade loading activities in Malaysia; (ii) higher revenue from increased beer sales volume from 100%-owned Carlsberg Singapore which grew 7% quarter-on-quarter (q-o-q) and; (iii) higher contribution of RM2 million from associate Lion Brewery Ceylon plc.
Despite a higher effective tax rate (five percentage points [pps] q-o-q), 3QFY11 net profit surged 58% compared with the preceding quarter. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin was up five pps q-o-q, largely attributed to: (i) better margins from Carlsberg Singapore at 25% against 13% (2QFY11) and (ii) productivity gains from initiatives undertaken within Carlsberg’s supply chain, as well as cost efficiencies from improved sales and marketing. Recall, Carlsberg invested in a new packaging design and introduced new large bottles as part of its global rebranding exercise in the preceding quarter.
Similar to past years, no dividend was declared for this quarter. Our net dividend per share forecast of 30 sen per share (yield: 4%) is premised on a dividend payout of 60%, in line with management’s guidance of 50% to 70% per year. The group declared an interim dividend of five sen per share (less 25% tax) in 2Q.
Carlsberg’s earnings growth will be firmly underpinned by increased demand on the back of greater advertising and promotions, namely the UEFA European Cup in 2012, of which the group is the official sponsor, as well as higher revenue contributions from its strengthening portfolio of imported/premium beers.
As it is, sales of recently launched “Kronenbourg 1664” and “Kronenbourg Blanc” French beers continue to gain further traction. Premium beers make up circa 10% of group revenue. Higher beer volumes would serve as a decent buffer against higher input costs in FY12F. We are not too concerned as major input costs, namely malting barley and hops, are some 24% off year-to-date peaks.
Maintain “buy” on Carlsberg with an unchanged discounted cash flow-based fair value of RM8.30 per share. — AmResearch, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
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