CARLSBG–Fundamental Analysis (27 Aug 2015)

CARLSBG Analysis:-

Excel – http://1drv.ms/1PVADIk

Notes – http://tinyurl.com/kdtolbw

I will write a longer write-up about CARLSBG in the future. To compare with GAB, you can check out “Peer Comparison” in my recent GAB Analysis.

My View:-

  • Valuation:
    • Historical Absolute EY%:
      • Trailing:
        • FY14 (EPS: 0.692) – 13.640 (Uncertainty Risk: MEDIUM)
        • R4Q (EPS: 0.648) – 12.774 (Uncertainty Risk: MEDIUM)
      • Forward:
        • FY15 (EPS: 0.661 ± 5%) – From 12.384 to 13.687 (Uncertainty Risk: MEDIUM)
        • FY16 (EPS: 0.708 ± 5%) – From 13.267 to 14.663 (Uncertainty Risk: LOW to MEDIUM)
      • EPS applied to reach the current stock price (11.16): 0.566
    • Industry Avg. Absolute EY%:
      • Trailing:
        • FY14 (EPS: 0.692) – 11.82 (Uncertainty Risk: MEDIUM)
        • R4Q (EPS: 0.648) – 11.07 (Uncertainty Risk: HIGH)
      • Forward:
        • FY15 (EPS: 0.661 ± 5%) – From 10.73 to 11.86 (Uncertainty Risk: MEDIUM to HIGH)
        • FY16 (EPS: 0.708 ± 5%) – From 11.50 to 12.71 (Uncertainty Risk: MEDIUM to HIGH)
    • 5-Y DCF:
      • Good Scenario (8.0% – 10.0%): From 11.48 to 12.29 (Uncertainty Risk: MEDIUM to HIGH)
      • Base Scenario (5.0% – 7.0%): From 10.35 to 11.09 (Uncertainty Risk: HIGH to VERY HIGH)
      • Bad Scenario (2.0% – 4.0%): From 9.31 to 9.99 (Uncertainty Risk: VERY HIGH)
      • Ugly Scenario (-2.0% – 0.0%): From 8.07 to 8.67 (Uncertainty Risk: EXTREME)
      • At current price (11.16), based on RDCF, assumption of FCFF growth rate in the next 5 years is 7.2%.
  • FY15 Q2 (Kenanga, 26 Aug 2015):
    • YoY, 1H15 revenue grew marginally by 3.7% toRM831.8m driven by strong performance in Singapore (+35.0%) on the back of higher sales volume and better product mix. Core operating profit shrank 3.0% to RM115.6m as operating margin narrowed by 1ppt to 13.9% due to higher raw material cost led by depreciating MYR. Core net profit declined marginally by 0.7% to RM91.8 m thanks to lower effective tax rate of 22.3% (1H14: 22.9%).
    • QoQ, 2Q15 revenue fell 6.3% due to the lower sales in Malaysia (-15.4%) as 1Q15 was boosted by the Chinese New Year celebrations. Core operating profit declined by 7.1% due to lower sales in Malaysia but mitigated by strong growth in Singapore due to the reasons mentioned above. As a result, core net profit of RM44.6m was 5.6% lower comparatively.
  • The exposure in Singapore has grown to 29% from 22.3% a year ago which we think is positive as it provides an outlet for the Group to diversify the risk away from the local market, which is dogged by persistent weak consumer sentiment and contraband’s beers.
  • CARLSBG is determined to move away from a single star beer product company to become a star beer portfolio company. Over the past 10 years, CARLSBG has been trying to launch a couple of new products into the market. To date, however, its Carlsberg Green Label is still viewed as the group’s only crown jewel. As such, a reshuffle has been undertaken in its top management team over the last 2 to 3 years with the aim of bringing good changes to the group. Besides, it has also appointed a few brand managers to oversee the brand building efforts across a few main products, whereby premium brands are expected to form a larger proportion of its new product portfolio. While efforts are being made to build market share for its premium products, the Carlsberg Green Label will remain as the bread and butter of the group. Whether or not CARLSBG will be able to return to its former glory, it is still too early to tell, but the good efforts warrant CARLSBG a buy/hold call for the long term. There are downside risks if things do not turn out as expected.
  • Going forward, I remain conservative and skeptical above volume growth in the brewery sector as some reports show that the industry is saturated. However, earnings should be sustainable at current levels.
  • Valuation wise, CARLSBG is fully or over valued, but its Dividend Yield is 6.4%. You basically pay premium to buy an outstanding dividend counter.

Latest Financial – Q2 2015 Financial Report (25 Aug 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4843713

At the time of writing, I owned shares of CARLSBG.

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