PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

B r ief ing Not e

MARKET DATELINE

1 March 2010

Carlsberg Brewery Share Price

Fair Value
:
:
RM4.68
RM5.90
Hello Singapore! Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (CARLSBG; Code: 2836) Bloomberg: CAB MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA Gearing ROE NDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (%) (%) (%)
2009a 1045.5 75.9 25.0 1.3 18.0 - 11.9 net cash 15.8 3.8
2010f 1426.2 127.2 41.3 67.3 10.7 36.0 15.5 net cash 24.3 5.6
2011f 1439.6 130.1 42.2 2.3 10.4 38.0 13.0 net cash 22.6 5.8
2012f 1453.5 143.9 46.7 8.4 9.6 47.0 14.4 net cash 23.0 6.2
Main Board Listing /Trustee Stock /Non-Syariah Approved Stock By The SC * Consensus Based On IBES Estimates

♦ The year of two halves. In FY09, Carlsberg was hit with higher raw
Issued Capital (m shares)
Market Cap(RMm)
308.1
1441.8
material costs, which impacted the cost of goods sold by RM15m; and
Daily Trading Vol (m shs) 0.1
flattish industry volumes due to slower economic environment, which also 52wk Price Range (RM) 3.24-4.76
led to an increase in off-trade consumption due to value pressure. On the Major Shareholders: (%)
positive front, Carlsberg highlighted that it has gained about 1% market Carlsberg Breweries A/S 51.0
share in FY09, driven mainly by the premium segment.
FYE Dec FY10 FY11 FY12
♦ Imported premium beer gaining popularity. Carlsberg’s imported EPS chg (%) - - -
premium beer segment grew 56% in FY09 and has received favourable Var to Cons (%) 1.1 14.7 -

feedback from on-trade consumers. By introducing these imported beers,

PE Band Chart
Carlsberg highlighted that they now offer consumers a greater variety,
which could translate to the gaining of more pub contracts in the Klang PER = 18x
PER = 16x
Valley. With the introduction of more imported premium beers, Carlsberg PER = 14x
hopes to be able to reduce the dominance of Guinness and Heineken, the
two strongest brands in the premium segment. In FY10, Carlsberg will be
introducing four new brands in the imported premium beer segment.

♦ Outlook for 2010. For FY10, Carlsberg expects total TIV to recover by 2%
(vs. our assumption of 1%) driven by improving consumer sentiment, later
Relative Performance To FBM KLCI
timing of Chinese New Year festive season and FIFA World Cup celebration.
Meanwhile, Carlsberg has since locked in new contracts for raw material
prices at lower prices in Jan 10 and expects margins to return to more FBM KLCI
normal levels. However, given the stronger-than-usual price war in
hypermarkets pre-Chinese New Year festivities (driven by hypermarket
players to drive traffic), Carlsberg remains concerned on value pressures Carlsberg
from its customers, as they become more used to lower priced beer.

♦ Forecasts. No changes to our forecasts.

♦ Risks. 1) Sharp drop in TIV; 2) continued decline in Carlsberg’s market

share; and 3) possibility of excise duty hike for future years.

♦ Maintain Outperform. We remain positive on Carlsberg’s outlook for 2010

given: 1) synergies from Singapore operations; 2) improving consumer Hoe Lee Leng
sentiment; and 3) FIFA World Cup, which could drive on-trade consumption, (603) 9280 2239
which is of better margin. Coupled with an average of 6% net dividend hoe.lee.leng@rhb.com.my
yield p.a., we maintain our Outperform recommendation on the stock with
a fair value of RM5.90 based on unchanged WACC of 9.2%.

Please read important disclosures at the end of this report.

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 1 March 2010

♦ The year of two halves. FY09 has been a year of two halves for Carlsberg. On the negative front, Carlsberg
was hit with higher raw material costs, which impacted the cost of goods sold by RM15m; and flattish industry
volumes due to slower economic environment, which also led to an increase in off-trade consumption due to
value pressure. On the positive front, Carlsberg highlighted that it has gained about 1% market share in FY09,
driven mainly by the premium segment, as it introduced a range of imported premium beers.

♦ Imported premium beer gaining popularity. Carlsberg’s imported premium beer segment grew 56% in FY09
(albeit from a low base) and has received favourable feedback from on-trade consumers especially for
Hoegaarden, which is the #1 imported beer in Malaysia currently. By introducing these imported beer brands,
Carlsberg highlighted that they now offer consumers a greater variety, which could translate to the gaining of
more pub contracts in the Klang Valley. With the introduction of more imported premium beers, Carlsberg hopes
to be able to reduce the dominance of Guinness and Heineken, the two strongest brands in the premium
segment. In FY10, Carlsberg will be introducing four new brands in the imported premium beer segment which
we have yet to input into our forecasts pending further details from management.

♦ Synergies from Singapore in FY10. In FY09, Carlsberg Singapore (CSPL)’s net profit grew 16% yoy to
SGD11.6m. This is excluding any synergies with Malaysian operations as the manufacturing contract for CSPL
was still under a Thailand brewery. W.e.f. Jan 10, Carlsberg started to manufacture for CSPL once again, and
this could reap about RM28m from potential synergies. Together with net funding cost of RM9m, Carlsberg
expects potential increase in earnings from Carlsberg Singapore of RM43m in FY10, which we have input into our
forecasts. For FY11-12, we assumed a 4% topline growth p.a. from the Singapore operations.

♦ Outlook for 2010. For FY10, Carlsberg expects total TIV to recover by 2% (vs. our assumption of 1%) driven
by improving consumer sentiment, later timing of Chinese New Year festive season and FIFA World Cup
celebration. Meanwhile, in Jan 2010, Carlsberg locked in new contracts for its raw material purchases at lower
prices and expects margins to return to more normal pre-FY08-09 levels in FY10. We have already assumed net
margins to rise to 9-10% in FY10-12, from 7-8% in FY08-09 and 9-10% pre-FY08, in our forecasts. However,
given the stronger-than-usual price war in hypermarkets pre-Chinese New Year festivities (driven by
hypermarket players to drive traffic), Carlsberg remains concerned on value pressures from its customers, as
they become more used to lower priced beer. Nevertheless, we believe our forecasts of +1% TIV growth and flat
domestic market share are already conservative and would have already taken the impact of these concerns into
account. We continue to remain positive on Carlsberg’s outlook for 2010 given: 1) synergies from Singapore
operations; 2) improving consumer sentiment; and 3) FIFA World Cup, which could drive on-trade consumption,
which yields better margins.

Risks

♦ The risks include: 1) sharp drop in TIV; 2) continued decline in Carlsberg’s market share; and 3) possibility of
excise duty hike for future years.

Forecasts

♦ No changes to our forecasts.

Recommendation

♦ Investment case. We remain positive on Carlsberg’s outlook for 2010 given: 1) synergies from Singapore
operations; 2) improving consumer sentiment; and 3) FIFA World Cup, which could drive on-trade consumption,
which yields better margins. Coupled with an average of 6% net dividend yield p.a., we maintain our
Outperform recommendation on the stock with a fair value of RM5.90 based on unchanged WACC of 9.2%.

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 1 March 2010

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 1045.5 1426.2 1439.6 1453.5 TIV (mil HL) 1.36 1.36 1.36
Turnover growth (%) 8.9 36.4 1.0 1.0 Market share (%) 40.3% 40.3% 40.3%

Cost of Sales (739.3) (965.8) (973.1) (973.1)

Gross Profit 306.2 460.4 466.5 466.5

EBITDA 117.6 192.7 201.9 205.0

EBITDA margin (%) 11.2 13.5 14.0 14.1

Depr&Amor (20.4) (21.9) (27.4) (28.5)

Net Interest 3.1 (12.0) (12.0) 1.9
Associates 2.2 0.2 0.2 2.2

Pretax Profit 102.6 159.0 162.6 180.6

Tax (26.1) (31.8) (32.5) (36.1)
Net Profit 75.9 127.2 130.1 143.9
Source: Company data, RHBRI estimates

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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