Carlsberg Brewery (M) Bhd 
(Aug 26, RM11.16)
Upgrade to add with an unchanged target price (TP) of RM13.22: Carlsberg Brewery (M) Bhd’s second quarter ended June 30 of financial year 2015 (2QFY15) revenue rose 13% year-on-year (y-o-y), while core net profit increased 10% y-o-y. 

Revenue performance was good in Malaysia, rising 5.5% y-o-y due to higher restocking post-goods and services tax (GST) and its Singapore business (+32.2% y-o-y), while net profit declined due to a one-off impairment loss of RM12.5 million from the sale of Luen Heng F&B Sdn Bhd. 

Its Singapore operation continues to exhibit strength. There was also positive impact from the acquisition of MayBev Pte Ltd in April 2014. First half FY15 (1HFY15) net profit declined 15% y-o-y mainly due to higher raw material costs on the back of a stronger US dollar. The overall 1HFY15 earnings before interest and tax margin dropped 1 percentage point y-o-y to 14%.

Management guided that it will continue to optimise its cost base and improve the market share of its premium products in 2HFY15 to counter the negative consumer sentiment. We do not expect further increases in the beer tariff in the upcoming Budget 2016 in October, given the challenging post-GST operating environment. 

On a quarter-on-quarter (q-o-q) basis, revenue fell 6.3% y-o-y and net profit declined 33% y-o-y. The poorer top line q-o-q was driven by its Malaysian operation (-15% due to the stronger Chinese New Year demand in first quarter), but this was mitigated by stronger Singapore sales (+20%). The q-o-q decline in the bottom line was due to lower revenue, impairment loss on disposal of Luen Heng and restructuring expenses. — CIMB Research, Aug 26

This article first appeared in digitaledge Daily, on August 27, 2015.