Carlsberg shared with us the strong performances of its Kronenbourg and Asahi brands together with its strategy at its analyst briefing recently. The former, in particular, saw 1HFY12 volumes triple y-o-y from last year’s low base. Thecompany’s Super Premium brands (like Kronenbourg) and portfolio variety serve as a key to secure more on-trade outlets to take on its brands, which in turn boost its bread-and-butter Green Label sales. We are raising our FY12f and FY13f earnings by 4.9% and 6.2% respectively, thus upgrading our FV to RM13.51.Maintain BUY.
GAB still dominates, but Carlsberg has something special. GAB estimates show that Carlsberg is still on a weaker footing compared its larger counterpart in Mainstream and Premium beer segment, which combined commands 93% of the malt liquor market (MLM). However, Carlsberg owns the lion share of the Super Premium segment, a segment that albeit still small but can open doors for its mainstream Green Label and premium Asahi brands.
Super Premium domination. With Malaysia’s ruling that an on-trade outlet will only be able to sell the beers of either GAB or Carlsberg, Carlsberg is looking to secure distributorship for more outlets by focusing its efforts on bringing in more super premium and thematic beers and heavily market them to create brand equity. Volume for its bread and butter Green Label will then be lifted with more secured distributorships as the outlets will be obliged to serve the Green Label as its mainstream beer. Asahi sales will also be similarly boosted, since the outlet will not be able to retail the Japanese beer’s most direct competitor, Heineken.
Dedicated unit to seek new ideas. With that strategy in mind, Carlsberg’s subsidiary Luen Heng is tasked to bring in new and exciting brands into Malaysian borders. GAB does not have dedicated unit of such kind. Carlsberg’s Super Premium portfolio is thus much more extensive than GAB’s. The Super Premium beers will unlikely cause the same positive trickle-down effect on the off-trade channel, however.
Maintain BUY. We are raising our Carlsberg FY12 and FY13 earnings forecasts by 4.9% and 6.2% respectively following a strong performance from its Singaporean operations and our expectations of a better product mix moving forward. As a result, our FV is raised to RM13.51, based on our FCFF model (WACC: 7.6%, terminal growth: 2.2%). Carlsberg is definitely making a determined comeback with its Asahi and especially Kronenbourg brands. Exposure to Singapore following its 2009 acquisition of
Carlsberg’s Singaporean operations has also opened the window for exposure to the higher beta, more tourism-centric beer consumption in the city state.
Carlsberg’s Singaporean operations has also opened the window for exposure to the higher beta, more tourism-centric beer consumption in the city state.
Gaining ground. GAB believes that Asahi holds a 5% market share in the Premium category over the past year, while Carlsberg estimates that the Japanese beer currently holds a ~15% market share following aggressive marketing efforts that kicked off in April 2012. The two breweries define “Premium” differently, as GAB includes Guinness in the segment while Carlsberg likely just refers this to just the premium lagers. Nonetheless, Asahi’s market share gains over the past few months are stellar given the beer’s relatively recent entry into the market. Carlsberg’s goal is to capture 20% of the Premium lager market. Under GAB’s definition, the Premium category has a 23% share of Malaysia’s MLM volume.
GAB still the largest. Based on GAB’s own estimates, GAB currently owns the lion’s share of most segments with the exception of the Super Premium segment. (see Figure 1). Tiger edges Carlsberg marginally in the bread and butter Mainstream category while Guinness and Heineken dominate the lucrative Premium market. Having that said, some level of bias in GAB’s data is very much unavoidable, but Carlsberg does not provide comparable figures for analysis. Nonetheless, even based on GAB’s figures, Carlsberg has a large lead in a segment that opens doors for its other beers. That segment is the Super Premium segment.
Super Premiums a Mainstream gateway. Following a repackaging initiative for Carlsberg’s traditional Green Label in 2QFY11, the company has since focused its advertising and promotional expenses on boosting the value of its Premium and Super Premium brands. The aim for sourcing various Super Premiums and exotic imported brands and building brand awareness is to secure distributorship for more on-trade outlets (as these are only able to sell beers from one of the two breweries in Malaysia). With more secured outlets, sales volumes for its mainstream Green Label will also be indirectly lifted as these outlets will be obliged to offer Carlsberg instead of GAB’s Tiger as its mainstream beer. Off-trade channels, such as
supermarkets and grocery stores, will likely be unaffected.
supermarkets and grocery stores, will likely be unaffected.
Sourcing the next Super Premium. To expand its Super Premium portfolio, it has a dedicated subsidiary named Luen Heng that focuses on bringing in new brands into Malaysia; GAB currently does not have such a unit. The mainstream segment accounts for 70% of Malaysia’s malt liquor market (MLM) volume and the Green Label represents ~80% of Carlsberg’s total volume.
Asahi the challenger. While the Super Premium and thematic brands under Carlsberg’s stable are positioned to bring the entire Carlsberg portfolio to more on-trade outlets, the company intends to make Asahi a significant force in the Premium segment, a segment that is still very much dominated by Heineken. Malaysian law, which requires each outlet to choose only GAB or Carlsberg as their sole beer supplier, will help boost Asahi’s presence. A Carlsberg-selling outlet is not able to retail competitor GAB’s Heineken, thereby limiting competition for the Japanese beer. Nonetheless, it seems very plausible that consumers in a Carlsberg outlet will bypass Asahi and opt for either the mainstream Green Label or the Super Premium brands. We believe Heineken is still a beer with far superior brand equity over Asahi.
GAB - Steady track record. GAB has been the country’s dominant beer producer since 2007 and has continued to increase its market share (estimated FY11 market share at ~58%). The company has managed to gain market share every year over the past 10 years, with earnings contracting just once in 2007 during the 2001 – 2012 period. Its bottomline has grown at a 12.2% CAGR over the past 11 years.
Carlsberg - Making a comeback. Carlsberg, meanwhile, is making a comeback by bringing new brands to Malaysian shores. Despite losing market share in the past, it is successfully making inroads into the premium beer segment through Asahi and Kronenbourg, which is now still very much dominated by GAB’s Heineken. Its acquisition in 2009 of Carlsberg’s Singaporean operations also opened the door for exposure to the higher beta, more tourism-centric beer consumption in the city state.
Maintain BUY. We are raising our Carlsberg FY12 and FY13 earnings forecasts by 4.9% and 6.2% respectively following a strong performance from its Singaporean operations and our expectations of a better product mix moving forward. As a result, our FV is raised to RM13.51, based on our FCFF model (WACC: 7.6%, terminal growth: 2.2%). In line with Carlsberg’s aim to fill in the gaps within its portfolio, the company has introduced a Swedish apple cider called Somersby in back in June. Somersby is said to be a sweeter-tasting competitor comparable to GAB’s cider Strongbow.
Source: OSK
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