Carlsberg Brewery - Cheering premium beer BUY

- We maintain BUY on Carlsberg Brewery (Carlsberg), with an unchanged DCF-based fair value of RM11.50/share (WACC: 9.2%).

- Carlsberg brewed a traditionally strong 1Q on the back of the Chinese New Year-driven sales, which met both our, and market, expectations. Annualised net profit accounted for 29% and 30% of our forecast and street estimates, respectively.

- The group posted a solid turnover for 1Q (QoQ: 36%, YoY: 12%) on the back of higher beer volumes as led by growth in the premium beer segment, notably the locally-brewed ‘Asahi Super Dry’. On a YoY basis, revenue from Carlsberg Malaysia and Singapore grew 13% and 3%, respectively. 

- However, the positive benefit was partially negated by a slight margin compression (YoY: -0.8ppt to 15.7%) due to higher raw material costs. Consequently, 1Q net profit was up only 7% compared to the same quarter in the preceding year.  

- Moving forward, we expect rising contributions from its portfolio of premium labels. For now, mainstream Carlsberg Green label remains the group’s backbone,making up an estimated 85%-90% of group earnings. 

- To recap, domestic production of premium labels, notably ‘Asahi Super Dry’ which kicked off last December, has so far registered double-digit volume growth. We expect similarly encouraging response when the local production of ‘Kronenbourg’ commences in 2-4 months’ time. This aside, the group would also be introducing one or two new European-based beers to further strengthen its market share of the premium segment (1QFY12: 16%-17%).

- Group EBITDA margin is expected to remain flattish on the back of largely stable raw material prices such as those of hops and malting barley. For FY12F, margin will be well cushioned by: -1) Increased beer volume as buoyed by the status quo of alcohol excise duty; 2) a 3% hike in average selling price from May 2012 onwards; and 3) Operating efficiencies from better economies of scale from local production of Asahi and Kronenbourg. 

- Similar to 1Q last year, no dividend was declared for this quarter. Our dividend forecast with a gross yield of 6% per annum (p.a.) is premised on a dividend payout of 70% – in line with management guidance of 50%-70% p.a.   

Source: AmeSecurities