Premium beers way forward for Carlsberg, says CIMB Research

  • Analyst Reports
  • Friday, 15 Feb 2019

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 Equities Research sees premium beers as the way forward for Carlsberg Brewery (M) Bhd and raised the target price from RM20.20 to RM24.30 after the release of its better-than-expected FY18 results.

FY18 core net profit of RM272.5mil came in above expectations, at 107% of the research house and 103% of Bloomberg consensus’ estimates.

“The stronger than-expected 15.4% on-year growth in FY18 net profit was due to: i) higher sales volume, ii) more profitable sales mix, and iii) a lower tax rate.

“Heading into 2019, we see two growth drivers for Carlsberg. We expect Singapore operations to improve with better inventory management and restructuring of its operations since 2H18. 

“Also, we expect Carlsberg to continue to record stronger sales volume, especially in the premium segment (Asahi, 1664 Blanc, etc) which offer better margins vs. mainstream beers (Carlsberg, etc). This is in line with Carlsberg’s ongoing strategy of premiumisation,” it said.

CIMB Research said Carlsberg highlighted that it is expecting higher production costs in tandem with the recent increase in raw material prices (5-10% on-year). However, it has forward hedged bulk of its necessary raw material requirements, and is confident of mitigating cost pressures with ongoing cost efficiency efforts.

It raised its rating to Add from Hold given optimism on: i) strong sales volume, ii) growing profitability via premiumisation, and iii) cheaper proxy to consumer sector (trading at 34% discount to current consumer sector CY20 weighted average P/E).

Carlsberg 4Q18 revenue rose by 6.7% on-year to RM525.7m, while core net profit ticked up 3.8% on-year to RM67.4m. 

This brought Carlsberg’s full-year FY18 core net earnings (stripping out one-off insurance claim for its Sri Lanka associate of RM4.7m) to RM272.5m, beating CIMB Research and market estimates at 107% and 103%, respectively. 

Carlsberg also declared a final 4Q18 DPS of 22.4 sen and a special DPS of 9.3 sen, bringing FY18 DPS to RM1  (vs. FY16: 87 sen). The 110% net profit payout was above expectations.

The higher-than-expected 4Q18 net profit of RM67.4m (5.7% on-year & 3.8% qoq) was due to: i) stronger sales volume in premium segment, ii) higher associate profits, and iii) a lower tax rate. 

CIMB Research earlier expected weak sales in 4Q18 as clients stocked up in 3Q18 prior to sales and services tax (SST) on Sept 1, 2018. Yet, Carlsberg still posted strong sales in 4Q18 as demand remained robust and positive government efforts to reduce illicit trade.
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