CIMB Research retains Hold for Carlsberg

A bartender serves a glass of Carlsberg beer at a bar in Kuala Lumpur, Malaysia in this July 4, 2012 file photo. - REUTERS

KUALA LUMPUR: CIMB Research retains Hold for Carlsberg Brewery with a target price of RM14.80 as the dividend yield remains appealing.

The research house said on Friday it retained its FY17-19F estimates. While 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%-5.8%. 

“Upside risk to our view include better-than-expected sales volume growth while downside risk includes unexpected increase in excise duties for beer,” it said.

CIMB Research said Carlsberg’s 2Q17 revenue increased 4.1% on-year to RM412.1mil, while core net profit ticked up 4.6% on-year to RM53.7mil. 

This brought its cumulative core earnings to RM122.2mil which was within both its 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 (vs. 1H16 DPS: five sen), in line with its forecast.   

The research house said Carlsberg’s 1H17 revenue rose 7.4% on-year to RM914.8mil thanks to better sales volume growth and improved product mix, as a result from “premiumisation” efforts. 

The 1H17 EBIT margin also expanded 2.1 percentage points on-year to 19.4% on the back of improved cost management and better operating efficiencies. 

Accordingly, core net profit also grew 6.9% on-year in spite of higher effective tax rates (+2.2 percentage points on-year) and higher associate losses of RM3.5mil (vs. 1H16’s loss: RM200,000).
   
On a quarterly basis, Carlsberg’s 2Q17 revenue declined 18% on-quarter because of lower sales growth for its Malaysia (-26.1% on-quarter) and Singapore (-0.9% on-quarter) operations, particularly due to the absence of any festive seasons during the quarter.

 Thus, in tandem with the decline in the revenue, the group’s bottom line decreased by 9.6% on-quarter. 

The group’s 25%-owned Sri Lankan associate, Lion Brewery (Ceylon) Ltd (LBCP) reported a profit of RM2.5mil for 2Q17, narrowing 1H17’s loss to RM3.5mil. 

“Nonetheless, we understand that this was mainly propped up by a claim of insurance compensation amounting to RM4.2mil 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 due to floods since May 2016,” it noted.