Analysts happy with Carlsberg’s expected results

PETALING JAYA: Analysts are generally satisfied with Carlsberg Brewery Bhd's second-quarter results that were in line with market expectations.

Its shares were last traded at RM6.87, up 2.8% or 19 sen from the previous close.

For the second quarter ended June 30, 2011, net profit rose 0.7% to RM31.02mil against RM30.82mil last year while revenue was up 3.4% to RM345mil from RM334.15mil previously.

More notable was its quarter-on-quarter performance which showed a decline that was due to heavy investments made to rejuvenate the Carlsberg trademark beer brand and higher consumption during the Chinese New Year celebrations in the first quarter. Net profit and revenue fell 36.6% and 15.2% respectively.

The marketing spending went mostly to the new larger bottle design as well as to advertising and promotional activities.

The refreshed Carlsberg bottle, whose new tagline is That Calls for a Carlsberg, is aimed at regaining its market share in the mainstream beer segment, especially from Guinness Anchor Bhd's (GAB) Tiger beer which has taken a chunk out of Carlsberg's dominance over the past few years.

With the new look, Carlsberg also aims to capture the attention of a younger and trendier consumer base aged 20 to 25.

OSK Research said it was positive on the rebranding initiatives. “We think it is crucial to develop brand loyalty at an early age as this young segment is most vulnerable to brand switching,” it said.

CIMB Research said a large part of the marketing expenses had already been incurred during the second quarter and it expected costs for the new packaging to be considerably lower in subsequent quarters as the bottles were recyclable.

Meanwhile, Carlsberg had gained a stronger footing in the premium beer segment, advancing its market share by 5% in the first half of this year.

CIMB noted that the contribution of this segment was still in its infancy it represented less than 10% of Carlsberg's revenue and less than 5% of net profit.

OSK Research said this showed Carlsberg's premium beer business had ample room to grow, singling out the Hoegaarden and Kronenbourg brands as potential growth drivers.

But the margins for this segment are thin, CIMB noted, and would remain so unless Carlsberg brewed its beer in-house, which the company said was something it was exploring and could execute next year.

By comparison, GAB's premium Heineken beer is brewed in-house, allowing it to maximise on margins.

In terms of outlook, OSK said Carlsberg's management had indicated that an excise duty hike for alcohol was unlikely to happen this year.

One reason for this would be the Government's push for tourism as an economic driver, OSK said. It added that more expensive alcohol would simply be a deterrent to tourists and counter-productive to the Government's efforts.

Malaysia's duties are currently the second highest in the world, and number one on a gross domestic product-adjusted basis.

CIMB has a contrarian view on this, however, and said it saw a risk of duties being hiked in the third quarter, since duties had remained at their current level for the previous five consecutive years.

Also of concern is the pressure of rising raw material costs on Carlsberg's margins in 2012. CIMB said the company had yet to hedge forward its purchases of major raw materials such as malt, which could impact profitability.

Carlsberg's management warned that prices for certain ingredients could expand by some 20% to 30% while material costs could be substantially higher next year.

On the demand side, AmResearch said it expected the demand momentum to be stable, supported by promotional events and the UEFA European Cup in 2012, of which Carlsberg is the official sponsor.

Carlsberg announced an interim dividend of 5 sen per share for the quarter.

At press time, five brokerage houses had a “buy” call on Carlsberg and two had a “neutral” call. None rated the stock as “sell”.