Stock Name: CARLSBG
Company Name: CARLSBERG BREWERY MALAYSIA BHD
Research House: RHB
Carlsberg Brewery (M) Bhd
(Jan 19, RM6.40)
Maintain outperform, revise fair value to RM7.87 from RM6.60: The malt liquor market (MLM) volume in Singapore is estimated to total approximately 1.5 million hectolitres (HL), similar to the volume in Malaysia despite its much smaller size.
Carlsberg's overall market share in Singapore stood at 21% as at 9MFY10, dominated by its Carlsberg Green Label brand.
The leader in terms of market share in Singapore is Asia-Pacific Breweries (APB), which controls about 40% of the total MLM. In terms of growth, management estimates that Singapore's MLM market grew at a steady rate of 8% to 9% in 2010 and is expected to maintain a similar momentum moving forward.
The strong top line growth expectation arising from Singapore is one of the reasons Carlsberg is planning to undertake a capacity expansion in its existing production facility in Shah Alam.
We understand that currently its overall production capacity stands at 1.3 million HL per year.
Carslberg plans to spend approximately RM6 million in capital expenditure to increase its production capacity. The expansion is expected to be completed by 2QFY11, which would increase Carlsberg's overall production capacity by 0.15 million to 0.2 million HL or 11.5% to 15.4%.
Carlsberg is planning to bring a new premium beer to the market to compete with Heineken, which may result in the discontinuation of Tuborg. We understand that the new premium beer would be a lager, and that it is a brand which is already distributed in the local market, albeit under the imported segment and not necessarily already distributed by Carlsberg.
After adjusting our assumptions for: (i) a higher revenue growth rate in Singapore of 8% for FY10/12 (from 3% previously); (ii) a higher growth rate of 5% for the Malaysian MLM for FY11 (from 1%); and (iii) higher capex and dividend payout assumptions of RM42 million and 70% respectively for FY11, our FY10/12 earnings are upgraded by 3.2% to 8.4%.
The risks include: (i) sharp drop in total industry volume; (ii) continued decline in Carlsberg's market share; and (iii) an excise duty hike in the budget proposals.
We are positive on Carlsberg's outlook moving forward, underpinned by its strong growth potential in Singapore.
Furthermore, we like the stock due to its strong dividend yield of 6.1% for 2011.
We have increased our DCF-derived fair value to RM7.87 (from RM6.60 previously) based on unchanged weighted average cost of capital of 9.2%. Our fair value implies a target FY11 price-earnings ratio (PER) of 15.5 times, which we believe is fair as it is two to three times lower than Guinness' current valuations, currently trading at 19 times CY11 PER. ' RHB Research Institute, Jan 19
This article appeared in The Edge Financial Daily, January 21, 2011.
Company Name: CARLSBERG BREWERY MALAYSIA BHD
Research House: RHB
Carlsberg Brewery (M) Bhd
(Jan 19, RM6.40)
Maintain outperform, revise fair value to RM7.87 from RM6.60: The malt liquor market (MLM) volume in Singapore is estimated to total approximately 1.5 million hectolitres (HL), similar to the volume in Malaysia despite its much smaller size.
Carlsberg's overall market share in Singapore stood at 21% as at 9MFY10, dominated by its Carlsberg Green Label brand.
The leader in terms of market share in Singapore is Asia-Pacific Breweries (APB), which controls about 40% of the total MLM. In terms of growth, management estimates that Singapore's MLM market grew at a steady rate of 8% to 9% in 2010 and is expected to maintain a similar momentum moving forward.
The strong top line growth expectation arising from Singapore is one of the reasons Carlsberg is planning to undertake a capacity expansion in its existing production facility in Shah Alam.
We understand that currently its overall production capacity stands at 1.3 million HL per year.
Carslberg plans to spend approximately RM6 million in capital expenditure to increase its production capacity. The expansion is expected to be completed by 2QFY11, which would increase Carlsberg's overall production capacity by 0.15 million to 0.2 million HL or 11.5% to 15.4%.
Carlsberg is planning to bring a new premium beer to the market to compete with Heineken, which may result in the discontinuation of Tuborg. We understand that the new premium beer would be a lager, and that it is a brand which is already distributed in the local market, albeit under the imported segment and not necessarily already distributed by Carlsberg.
After adjusting our assumptions for: (i) a higher revenue growth rate in Singapore of 8% for FY10/12 (from 3% previously); (ii) a higher growth rate of 5% for the Malaysian MLM for FY11 (from 1%); and (iii) higher capex and dividend payout assumptions of RM42 million and 70% respectively for FY11, our FY10/12 earnings are upgraded by 3.2% to 8.4%.
The risks include: (i) sharp drop in total industry volume; (ii) continued decline in Carlsberg's market share; and (iii) an excise duty hike in the budget proposals.
We are positive on Carlsberg's outlook moving forward, underpinned by its strong growth potential in Singapore.
Furthermore, we like the stock due to its strong dividend yield of 6.1% for 2011.
We have increased our DCF-derived fair value to RM7.87 (from RM6.60 previously) based on unchanged weighted average cost of capital of 9.2%. Our fair value implies a target FY11 price-earnings ratio (PER) of 15.5 times, which we believe is fair as it is two to three times lower than Guinness' current valuations, currently trading at 19 times CY11 PER. ' RHB Research Institute, Jan 19
This article appeared in The Edge Financial Daily, January 21, 2011.
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