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Friday, August 18, 2017

Carlsberg - Steadfast Premium Demand

Author: kiasutrader | Publish date: Fri, 18 Aug 2017, 09:00 AM

6M17 core earnings of RM128.3m (+12%) beat expectation as portfolio ‘premiumisation’ supported 2Q17 performance. An interim 10.0 sen dividend declared is within expectation. Going forward, its Sri Lankan operations may continue its shared losses but sustainable demand from a stronger product portfolio should support better growth. Maintain MARKET PERFORM with a higher TP of RM15.30.

6M17 stronger than expected. While 6M17 core PATAMI of RM128.3m made up 55% of both our and consensus estimates, we deem this to be above expectations as we had anticipated a weaker 2Q17 performance on post seasonality while expecting better 2H17 earnings to be driven by the SEA games events. The stronger earnings was backed by an increasing reception of premium product offerings. An interim dividend of 10.0 sen was declared, which we deem as within expectation as the group typically declares the bulk of dividends in the 4th quarter.

YoY, 6M17 revenue of RM914.8m grew by 7% arising from a stronger demand in premium brands, which expanded the sales from the Singapore market by 17%. However, the Malaysian market only grew by 2% with the continuous softness in consumer sentiment. The above also contributed to a widening in EBIT margin to 19.3% (+2.0 pts) for an EBIT of RM176.3m (+20%). PBT registered at RM171.5m (+19%) as Lion Brewery (Ceylon) PLC continued to attributed shared losses from operating at below optimal levels. 6M17 PATAMI closed at RM128.3m (+12%) with higher effective taxes and contributions towards minority interests.

QoQ, 2Q17 sales declined by 18% from a weaker post-Chinese New Year seasonality which saw heavy forward purchases. While the Malaysian market declined by 26%, the Singaporean market only declined by 1%, driven by better product mixes in favour of newer premium offerings. EBIT declined by 14% with better group margin at 19.8% (+0.9 pts). With lower effective taxes in line with lower profits, 2Q17 core earnings only declined by 10%.

Premium products to pave the way. The Sri Lankan operations may continue to be a thorn as it continues to be overwhelmed by operating expenses as it has yet to achieve optimal levels of production to break even. While the general domestic market may continue to be soft from weaker consumer spending, the group’s emphasis on “premiumisation” of offerings appears to be bearing fruit given the strong reception in the on-trade and off-trade segments, particularly in the Singaporean market where sentiments are less tepid. Furthermore, more extensive efforts to develop premium offerings could allow the group to ride against market weaknesses given the more resilient demand against the cheaper nonpremium brands.

Post-results, we tweak our FY17E/FY18E earnings estimates by 2.6%/3.0% as we expect better performance, driven by the stronger product mix in the coming quarters.

Maintain MARKET PERFORM with a revised Target Price of RM15.30 (from RM14.84, previously). Our target price is based on an unchanged FY18E PER of 17.6x (in line with the stock’s 3-year mean PER) on a higher EPS of 86.8 sen. At the current price, the stock could potentially offer a dividend yield of 5.3% in FY18 which could be attractive for yield seeking investors.

Source: Kenanga Research - 18 Aug 2017

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