- Higher MLM growth
forecast of 6%-7% – We have raised our MLM growth forecast to 6%-7% for
2012-2013, up from 5%-6% previously. Our channel checks at selected F&B
outlets within the Klang Valley suggest a relatively resilient demand, with the
recent 3% price hike wellabsorbed by end-consumers. To recap, the higher
pricing structure was implemented by both brewers Carlsberg Brewery Malaysia
Bhd (CAB) and Guinness Anchor Bhd (GAB) back in May 2012.
- Robust beer volume
growth seen – Notwithstanding the effect from the Euro 2012 special event, the
industry’s longer-term upward growth trajectory remains intact. We see healthy
demand growth well underpinned by: -1) the status quo in alcohol excise duty at
RM7.40/litre; 2) positive consumer spending sentiment and; 3) on-going major
A&P campaigns to boost sales.
- Slump in price of
malting barley to drive margin expansion in 2013 - Robust beer volume growth
aside and more importantly, we believe brewers are poised for an earnings
upgrade from margin expansion on the back of cheaper input costs going forward.
We see a sustained easing in prices of malting barley due to:- 1) additional
global supply on increased plantings and favourable weather conditions, and 2) Flattish
demand from Europe alongside the bearish macroeconomic outlook in the region. As
it is, the current price of malting barley at EUR219/MT is down a further 12%
from 2 months ago, extending its downward trend from the YTD high of EUR288/MT
(Feb 2012). This brings the present price level on par to that last seen in
2009, prior to the heat wave-induced price surge in 2010. Much as we witnessed
a notable margin expansion back then, we expect a similar re-run going into
CY13F.
- EPS forecast raised
by 7% to 9% - We anticipate a margin improvement of 2ppts to 3ppts for next
year as new and cheaper inventories of malting barley filter through. Both
brewers have locked in their respective raw material requirements for CY12.
Next to excise duties, raw materials & packaging costs account for
approximately 15%-17% of total operating costs. Consequently, our earnings
forecasts for CAB and GAB have been nudged upwards by 7% to 9% for FY13F-14F.
Our revised earnings models now suggest a 3-year earnings CAGR of 8% for GAB
and a higher 10% for CAB.
- Dividend yield of
5% p.a. is still decent – As we have seen, the recent share price rally comes
in largely in line with the re-rating of the broader consumer sector, mainly
due to rising interests by investors seeking a defensive portfolio strategy.
Nonetheless, net dividend yields of 5% per annum (p.a.) are still decent
especially in view of renewed uncertainties in the global capital markets.
- Re-affirm BUY on
CAB, FV: RM14.00/share - We re-affirm our BUY recommendation on CAB with a
higher DCF-based fair value of RM14.00/share post a revised long-term growth
rate assumption of 4% vs. 3% previously. CAB remains our preferred pick for
exposure to the brewery sector for its solid earnings prospects on the back of
an expanding market share and a deepening market penetration. A strong portfolio
of premium beers and in-house brewing of imported labels (Asahi, Kronenbourg
1664 and Kronenbourg Blanc) will further bolster long-term growth.
- Maintain HOLD on
GAB, FV: RM14.50/share – We maintain our HOLD recommendation on GAB with a
higher DCF-based fair value of RM14.50/share, as we upped our long-term growth
rate assumption from 2% to 3%.GAB’s dividend yield of 5% per annum (p.a.) as
premised on a generous dividend payout of 90% is well supported by the group’s
strong brand equity and dominant MLM market share at 60%-62%. Additionally, the
stock is a potential beneficiary of capital management initiatives which could
result in the establishment of a higher dividend payout policy as part of
management’s effort to optimise its cost of capital.
Source: AmeSecurities
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