Cost efficiencies to boost Carlsberg profits

Carlsberg launched a seven-year plan in 2015 to deliver organic sales growth and margin improvements by striking a balance between volume growth and more profitable products.

KUALA LUMPUR: Maybank Investment Bank Research expects Carlsberg Brewery Malaysia Bhd’s management’s continuous focus on cost management, increased exports and better contributions from Singapore, to drive earnings growth in the near term.

The research house said Carlsberg’s first quarter ended March 31 results were “in line”. It said the brewer’s first quarter core net profit of RM63mil accounted for 27% of the house and consensus full-year estimates. It noted that first quarter typically accounts for about 27% of full-year earnings.

“Our earnings forecasts, buy call and RM14.20  discounted cash flow (DCF)-target price are unchanged. FY16 estimate dividend yield of 6% adds to its merits,” Maybank said.

Maybank said Carlsberg’s domestic revenue was flat year-on-year following the Luen Heng F&B Sdn Bhd (LHFB) divestment in FY15. Earnings before interest and tax (EBit) however grew 23% year-on-year on positive product mix and cost efficiencies.

Its Singapore operation saw Ebit jump 100% on the back of higher revenue, strengthening Singapore dollar against ringgit, better cost efficiencies and better contribution from Maybev.

On a quarter-on-quarter basis, group revenue grew 8% but pretax profit fell 19% on higher Chinese New Year advertising and promotion expenses and a loss from 25% associate Lion Brewery (Ceylon) PLC in Sri Lanka.

“We understand that operations in Sri Lanka were impacted by two consecutive excise tax hikes in October and November 2015,” Maybank said.

“While topline growth for the domestic operation could remain subdued on weak consumer sentiment, we expect bottomline growth to be supported by cost efficiencies, Singapore operation and other export sales.

“With the recent excise tax hike adjustment in Malaysia on March 1, 2016 (ie 10% for mainstream 5% ABV beer/litre), we believe regulatory risk has moderated. Given the modest adjustment in selling prices by Carlsberg (+2-5%), we believe there should be little impact to volumes,” the research house said.