Carlsberg upgraded to outperform with higher TP of RM17.65

KUALA LUMPUR: Kenanga Research upgraded Carlsberg Brewery Malaysia to outperform with a higher target price of RM17.65 as FY17 profits came in within its expectations but missed consensus, and potential growth upsides are expected moving forward.

"FY17 PATAMI of RM221.2m is within our estimate but below consensus, making up 97% and 94% of respective estimates. 

"The negative deviation from consensus is possibly due to better-than-expected results from its Singapore operations. The full-year dividend of 87 sen declared is above our 75 sen estimate as we had expected dividend payments to be only slightly above 100%," said the research firm in its Thursday report.

For the year, Carlsberg's revenue of RM1.8bil grew 5% due to stronger sales in both Malaysian and Singapore markets. 

"Operating margin for Malaysia operations was stronger at 18.5% (+0.7ppt) from better premium product mix but Singapore margin recorded 13.8% (-3.1ppt) from prolonged impact of trade offer adjustments."

Kenanga Research said Carlsberg's improving performance is attributed to its success with premium products. It added that while the less-premium products recorded uninspiring sales volume due to weaker consumer sentiment, the FIFA World Cup this year could boost demand. 

With regards to the group's Sri Lankan associate, Lion Brewery's recent earnings show that the operation has fully recovered from the 2016 flood.

"Management had announced that it would be adopting a 100% dividend policy. In addition to this, management also expressed the intention to declare at least c.75% of its quarterly earnings as quarterly interim dividends. 

"We are positive with this development as it provides investors with greater visibility of their investment returns."

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