CARLSBERG (FV RM10.52 - NEUTRAL) 1QFY12 Results Review: Fully Valued

Carlsberg’s 1QFY12 earnings of RM52.4m were higher y-o-y and q-o-q in tandem with  strong sales  boosted by its Chinese New Year promotions and  its growing hold on  the premium beer segment. The group has dedicated a lot of marketing efforts towards building up the Asahi brand as a rival to GAB’s Heineken. We are raising our FV slightly to RM10.52 but are nonetheless downgrading Carlsberg to NEUTRAL given the meagre 0.2% potential upside.

Within estimates.  Carlsberg posted 1QFY12 revenue of RM454.0m (+11.5% y-o-y, +35.5% q-o-q) and earnings of RM52.4m (+7.0% y-o-y, +40.2% q-o-q) on the back of stronger sales volume and continued growth in the premium beer segment. However, higher raw material prices, coupled with the company’s  visibly  aggressive marketing initiatives, shaved 0.8 ppt off its EBIT margin on a y-o-y basis. The quarter’s earnings represent 30.6% and 29.7% of our and consensus forecasts, which was in line as the group’s 1Q earnings have historically averaged 29.9% of full-year earnings over the past 6 years. That said, its 1Q profits have traditionally been lifted by higher sales during the Chinese New Year festive season.

Chinese New Year and Asahi boost.  Carlsberg’s revenue from its Malaysian operations  jumped  12.9% y-o-y  on its  successful Chinese New Year promotions but revenue from Singapore only inched up by 2.7% y-o-y. The lower growth in Singapore arose from the timing of CNY sales, as most Singaporeans had completed their festive shopping in December 2011 ahead of the celebrations in  January 2012. The company made market share gains in the premium beer segment, buoyed by  the launch of  the locally-brewed Asahi, as well as strong sales from Kronenbourg. Carlsberg has definitely increased  the visibility of the Asahi brand via  aggressive and creative marketing activities at not only at the bars and coffee shops but also on the streets (have you met Mr Asahi?  Take a look  at  our picture below). Having that said, the premium beer segment is currently still dominated by GAB’s Heineken.

Downgrade to NEUTRAL. We are raising our FV slightly to RM10.52 on the back of the company’s  higher net cash position of RM80.2m but are maintaining our earnings forecast  since the results were in line with estimates. Our FV is  based on FCFF valuation (WACC: 9.0%, terminal growth: 2.0%). But given the miserable 0.2% potential price upside, we are downgrading Carlsberg to NEUTRAL.

Source: OSK