Carlsberg Brewery - Capitalising on its super premium niche BUY

- We re-affirm our BUY recommendation on Carlsberg Brewery (M) Bhd (CAB), with an unchanged DCF-based fair value of RM14.00/share. Despite the stock’s stellar performance in 2012, (+47% vs KLCI’s +10%), we believe it still has legs on the upside.

- Our upbeat view on CAB’s earnings prospects is underpinned by:- (1) robust beer volumes moving forward; (2) its solid footing in the fast-growing super premium beer segment; (3) its expanding market share; and (4) significant contributions from Carlsberg Singapore Pte Ltd.

- While we see volumes moderating slightly post 2012’s world events (the Olympics and UEFA Euro 2012), we gather that demand growth of 6%-7% in FY13F and FY14F will be well supported by:- (1) status quo excise duty at RM7.40/litre; (2) overall positive consumer sentiment; (3) more brewer-organised events; and (4) its parent company’s 3-year sponsorship deal with the Barclays Premier League.

- CAB has established itself as the leader (75% market share) in the emerging super premium/imported beer segment (FY12F: 2% of total MLM). We expect rising contributions from this segment (FY13F: ~15% of revenue) as demand escalates, buoyed by favourable demographics.

- By shoring up its portfolio, CAB is well-positioned to enlarge its market share (9M12: +2ppts to 42%) and develop its modern ontrade sales channel (currently 22% vs. rival Guinness’ 42%). 

- In the near term, we anticipate the group to raise ASPs by 3%-4% (similar to 2011 and 2012) to offset higher raw material costs. The price of malting barley is up 17% from its recent low of EUR198/MT in May 2012 following a grains rally and is expected to remain firm in 2013 as supplies tighten. 

- We forecast EBITDA margin to remain stable (+1ppt) at ~17% in FY13F-FY14F. Savings from in-house production of premium beers (reduced transportation and logistics costs due to absence of a RM5.00/litre import duty) will be capped by increasing marketing expenses (FY13F: +8% YoY) and higher input costs.

- CAB’s final quarter earnings are expected to be resilient as healthy sales momentum is carried through by seasonally high demand. As such, we have fine-tuned our earnings model by +3% for FY12F to better reflect its utilisation rates and improved product mix. We now project net profit to grow by 12% to RM186mil in FY12F and a further 13% to RM210mil in FY13F.

- Our revised gross DPS forecasts of 57 sen for FY12F and 65 sen for FY13F are premised on a higher 93% payout ratio (previously, 90%). Average yields of 5% for the next 3 years are attractive.

- We continue to like CAB for its more international oriented, synergistic brand portfolio and strengthened execution capabilities.

Source: AmeSecurities