CARLSBG Updates – 25 Apr 2017

CARLSBG analysis file – https://doc.co/vYKN41

I don’t expect significant growth in CARLSBG (and HEIM) business in foreseeable future. In my opinion, at 15, valuation of CARLSBG is fully valued where I believe its fair value range from 15.3 to 15.6. Its dividend yield is around 4.5%.

As of now, I won’t consider to accumulate CARLSBG, but to hold it for extremely high dividend yield as my average cost for CARLSBG is almost free.

Join my FB group: https://www.facebook.com/groups/285121298359919 for more collaboration.

 

CARLSBG – Fundamental Analysis (5 Sep 2016)

Excel – Download the analysis file

Latest Financial – Q2 2016 Financial Report (23 Aug 2016)

FY16 Q2 Results Highlight:

  • 2QFY16 versus 2QFY15
    • CARLSBG revenue grew marginally by 2.4% to RM851.5mn. This was driven by positive contribution from Singapore segment. The segment recorded a double-digit growth of 13.7% to RM274.6mn supported by better products mix as well as higher contribution from subsidiary company Maybev.
    • Despite the positive contribution from Singapore segment, Malaysia segment logged a slight contraction of 2.3% to RM577mn underpinned by loss of contribution from Luen Heng business.
  • 12MFY16 versus 12MFY15
    • CARLSBG’s operating profit expanded by 26.8% YoY to RM147mn owing to strong contribution from both segments (Malaysia: 43.4% YoY to RM99.2mn and Singapore: 40.3% YoY to RM47.3mn).
    • This was attributable to effective costs control and positive products mix, increased contribution from Maybev, and 3) strengthening of Singapore Dollar against MYR.

 

Going Forward:

  • I remains confident that CARLSBG will deliver commendable results for FY16 even if there are many uncertainties in the global economy.
  • In my opinion, fair value of CARLSBG is from 14.7 to 15.6 (Uncertainty Risk: HIGH)
  • I will continue to hold, but will not accumulate CARLSBG for the time being.

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

CARLSBG – Fundamental Analysis (20 Jun 2016)

Excel – Download the analysis file

Latest Financial – Q1 2016 Financial Report (17 May 2016)

FY16 Q1 Results Highlight:

  • CARLSBG reported an increase of 6.1%yoy in 1Q16 revenue to RM455.7m and an increase of 39.3%yoy in core net profit to RM64.8m.
  • Earnings increase was mainly driven by higher contribution from both the Malaysia and Singapore operations.
    • The group’s Singapore operations saw revenue increase of 24.0%yoy to RM136.0m due to successful marketing efforts for the Chinese New Year festivities. Revenue from its Malaysia operations managed to record a flat RM 337.8m (+0.5%yoy) despite the loss of revenue from the Luen Heng F&B Sdn Bhd (LHFB) divestment.
  • FY15 domestic revenue contracted 9% YoY mainly due to the revenue impact from its Luen Heng divestment. EBIT fell 19% YoY, impacted also by higher raw material costs on the weaker MYR. Its Singapore ops saw EBIT jump 68% YoY on the back of
    • higher FY15 revenue,
    • better cost efficiencies,
    • improved price and product mix,
    • improved contribution from Maybev,
    • positive currency impact – stronger SGD.

Valuation:

  • In my opinion, fair value of CARLSBG range from 14.2 to 15.2. Uncertainty risk of fair value is MEDIUM.

CARLSBG-FY16Q1-Football-Field

Going Forward:

  • 3 Mar 2016 – The government has gazette into law some changes to the methodology in which excise duty (ED) on beers and liquor is calculated. Previously the ED on beers was calculated as RM7.40/litre + 15% ad valorem tax. Effective 1/3/2016 the duty is calculated on basis of RM175 per 100% vol/litre.
    • 3 Mar 2016 – Brewery – A Relieving Excise Duty Revision
  • Despite the excise hike in March, I think CARLSBG would be less affected due to its growing contribution from its Singapore operations.
  • Earnings should be sustainable at current levels. On the other hand, the better product mix with more investment and brand building on the premium brands, including Somersby Apple Cider, Somersby Pear Cider and Kronenbourg is expected to drive earnings growth as sales volume growth is expected to be subdued due to the soft consumer sentiment.
  • The exposure in Singapore has grown to 37.6% from 24.0% a year ago which is positive as it provides a market for the Group to diversify away from the local market which is dogged by persistently weak consumer sentiment and contrabands beers.
  • The Group’s effective cost management programmes, which had helped to reduce the impact of MYR depreciation on the operating costs.

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

CARLSBG – Fundamental Analysis (12 Apr 2016)

Excel – Download the analysis file

Latest Financial – Q4 2015 Financial Report (26 Feb 2016) http://www.bursamalaysia.com/market/listed-companies/company-announcements/5012261

FY15 Q4 Results Highlight:

  • In FY15, CARLSBG’s revenue increased by 1.5% YoY to RM1,660 million; For 4QFY15, the Group’s revenue increased by 4.2% QoQ to RM422.5 million.
  • In FY15, EBITA increased by 3.6% YoY from RM282.1 million to RM 292.3 million.
  • The 4QFY15 earnings outperformance was due to better-than-expected sales and margins contribution from Singapore.
  • FY15 domestic revenue contracted 9% YoY mainly due to the revenue impact from its Luen Heng divestment. EBIT fell 19% YoY, impacted also by higher raw material costs on the weaker MYR. Its Singapore ops saw EBIT jump 68% YoY on the back of
    • higher FY15 revenue,
    • better cost efficiencies,
    • improved price and product mix,
    • improved contribution from Maybev,
    • positive currency impact – stronger SGD.

Valuation:

  • In my opinion, fair value of CARLSBG range from 14 to 15. Uncertainty risk of fair value is MEDIUM to HIGH.

CARLSBG-FY16Q4-Football-Field

Going Forward:

  • 3 Mar 2016 – The government has gazette into law some changes to the methodology in which excise duty (ED) on beers and liquor is calculated. Previously the ED on beers was calculated as RM7.40/litre + 15% ad valorem tax. Effective 1/3/2016 the duty is calculated on basis of RM175 per 100% vol/litre.
    • 3 Mar 2016 – Brewery – A Relieving Excise Duty Revision
  • 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.
  • On the other hand, the better product mix with more investment and brand building on the premium brands, including Somersby Apple Cider, Somersby Pear Cider and Kronenbourg is expected to drive earnings growth as sales volume growth is expected to be subdued due to the soft consumer sentiment.
  • The exposure in Singapore has grown to 37.6% from 24.0% a year ago which is positive as it provides a market for the Group to diversify away from the local market which is dogged by persistently weak consumer sentiment and contrabands beers.
  • The Group’s effective cost management programmes, which had helped to reduce the impact of MYR depreciation on the operating costs.
  • As expected, final DPS of 67.0sen was declared, bringing FY15 total DPS to 72.0sen (vs FY14: 71 sen), which DPS translates into a pay-out ratio of 96.9%.

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

Malaysia Alcoholic Beverages – Excise duty hike

According to the Excise Duties (Amendment) Order 2016 posted on the Royal Malaysian Customs Department’s website, the excise duty for beer made from malt will be changed from RM7.40 per litre and 15% ad valorem tax, to RM175 per 100% volume per litre effective March 1, 2016.

The immediate impact of this hike is, of course, GAB adjusts product prices following excise duty hike.

To assess impact of excise duty hike in long term, we can look back the history.

Refer to the following chart, MLM Volumes grows in long term even if high excise tax imposed.

Excise duty hike

Source: AmResearch 27 Mar 2014

The following chart shows change in Excise Duty vs. EBIT Margins. EBIT margins for both GAB and CAB remained stable throughout the consecutive excise hikes in 2004-2006. GAB’s margin hovered around14% while CAB is at about 11%. Since 2007, EBIT margins have been on an upward trend, aided by the absence of excise hikes as well as emphasis on efficiency by the brewers.

Change in Excise Duty EBIT Margins

Now, let see what was the impact of excise duty hike to the share prices. As you can see from the following charts, the impact wasn’t so significant.

GAB

2016Mar-CARLSBG-2048x1152

We all know the following quote, but history can give us some clues what can happen in this industry.

j-c-duffy-to-quote-my-broker-past-results-are-no-guarantee-of-future-performance-new-yorker-cartoon

CARLSBG – Fundamental Analysis (1 Dec 2015)

Fundamental Analysis as of FY14 – http://www.slideshare.net/lcchong76/carlsbg-fundamental-analysis-fy14

Excel – http://1drv.ms/1TpUkd3

Latest Financial – Q3 2015 Financial Report (30 Nov 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4937213

Peer Comparison – http://www.slideshare.net/lcchong76/alcoholic-klse-peer-comparison

FY16 Q1 Results Highlight:

  • For the third quarter, the Group’s revenue decreased by 0.9% to RM405.7 million compared to the same quarter last year.
  • Profit after tax increased by 8.4% to RM 63.7 million to RM58.8 million YoY.
  • The Malaysian operations recorded a decline in revenue of 10.0% to RM263.2 million due to revenue impact from the LHFB divestment as well as the later timing of trade stock-up ahead of the government’s National Budget 2016.
  • In Singapore, the business continued to gain traction. Revenue grew by 21.8% to RM142.5 million whilst operating profit improved by 80.4% to RM36.0 million. The improved result was driven by higher sales volume, effective cost control, increased contribution from the Maybev acquisition as well as the strengthening of the Singapore Dollar against the Ringgit.
  • For the period ended 30 September 2015, the Group recorded revenue of RM1,237.4 million, 2.2% higher than last year.
  • The Malaysian operations recorded a decline in revenue of 6.8% to RM853.5 million.
  • For Singapore operations, revenue grew by 29.8% to RM383.9 million whilst operating profit improved by 55.3% to RM69.7 million.

Valuation:

  • Absolute EY%:
    • Historical
      • Trailing:
        • FY14 (EPS: 0.692) – 13.360 (Uncertainty Risk: MEDIUM)
        • R4Q (EPS: 0.668) – 12.904 (Uncertainty Risk: MEDIUM)
      • Forward:
        • FY16 (EPS: 0.715 ± 5%) – From 13.121 to 14.502 (Uncertainty Risk: MEDIUM)
        • FY17 (EPS: 0.757 ± 5%) – From 13.877 to 15.338 (Uncertainty Risk: LOW to MEDIUM)
      • EPS applied to reach the current stock price (11.64): 0.603
    • Industry
      • Trailing:
        • FY14 (EPS: 0.692) – 13.05 (Uncertainty Risk: MEDIUM)
        • R4Q (EPS: 0.668) – 12.60 (Uncertainty Risk: MEDIUM)
      • Forward:
        • FY16 (EPS: 0.715 ± 5%) – From 12.82 to 14.16 (Uncertainty Risk: MEDIUM)
        • FY17 (EPS: 0.757 ± 5%) – From 13.55 to 14.98 (Uncertainty Risk: LOW to MEDIUM)
  • 5-Y DCF:
    • Good Scenario (8.0% – 10.0%): From 11.48 to 12.29 (Uncertainty Risk: HIGH)
    • Base Scenario (5.0% – 7.0%): From 10.35 to 11.09 (Uncertainty Risk: 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 (11.64), based on RDCF, assumption of FCFF growth rate in the next 5 years is 8.5%.
  • In my opinion, fair value of CARLSBG range from 12.5 to 13.5. Uncertainty risk of fair value is MEDIUM.

CARLSBG-FY15-Q3-Football

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.

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

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.