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Carlsberg Malaysia eyes Singapore unit

Carlsberg Brewery Malaysia Bhd plans to acquire Carlsberg Singapore Pte Ltd, its sister company in the island nation, for RM370m in cash from their Danish parent Carlsberg Breweries A/S.

The existing licence owned by Carlsberg Singapore would be continued for 20 years following completion of the exercise and existing products sold on the island will be sourced from Malaysia. (The Malaysian Reserve)

Comments: The move appears positive as it will be earnings accretive and the parent company, Carlsberg Breweries A/S will be supporting the dividend policy of distributing 50% to 70% of earnings for the next five years. However, its net cash piles of RM225m as at 1Q09 will be affected. It will turn from a net cash company to a net debt company with a net gearings ratio of 0.3x.

from net cash to net debt !!!
coming dividend will be gone.

It's dividend and EPS has been in a downtrend this past few years. That should give a warning sign already. On the other hand, Guiness performs better than Carlsberg.

ya, i guess so, Guiness performs better and dividend also much better.
i have bet heavy on Carslbg, hope it touch RM5, so that i can let go.
i wonder will there be any bonus issue, since it share issue is pretty small..

The acquisition is good. Earnings accretive, should increase net profit by about 50%. If that's the case, CAB would be trading at about 10-11x PE! Good for a company which would give you abs dividend of the same amount. Furthermore, since when was CAB this low for the past 5-8 years?

At the moment we might not see any earning reflected to show it net profit increases. What is definite for immediate term dividend is gone for time being. Future is bright but that will require at least 2 years to realise that. Long term hold should be fined but will have to bear with no dividend i presumed,

This post has been edited by smartly: Jul 30 2009, 09:40 AM

While we may not see it at the moment, based on a conservative base of RM37m improvement to the bottomline, you are still getting Carlsberg at a cheaper PE than Guinness (based on FY10 earnings). No one is really looking at FY09 anymore.

Dividend policy is now reduced to 50-70% net payout. But in terms of absolute value, it would be almost the same. Hence, net yield of about 6-7%. Pretty satisfying for the investment community.

i am a bit even more conservative to give earning improve by say 40%.
that will give Carslbg PE of 13, still cheaper than Guiness of PE=15.
to be even more conservative comparing with Guiness, Carslbg should worth around RM5.10 for now.

Carlsberg PE is not low, its EPS has been in the down trend since late 2-3 years, largely due to Tiger beer has eaten the market share of Carlsberg, which is the major concern.

Its EPS is expected around 25-30 cent, so if reach 5.00 seems a bit high though unless there is positive earning from the acquisition as well as contribute cashflow and enable the company to give generous dividend again.

Dividend wise, short term, Carlsberg no long able to pay special dividend after the acquisition, while Guiness still sitting at high cash pile which enable them to give generous dividend, that's why Guiness is trading at higher premium.

Future indeed look better with Singapore market, that's why market like the news, as locally, there is no room for upside as well as market share competitive issue with Guiness as mentioned earlier, so go to overseas for expansion and getting more revenue is a good way.

But how much it can contribute the profit from the acquisition, it doesn't state it, so difficult to judge how the impact will be.

lets assume Carslbg(M) EPS is 25sen. and.
Carlsbg(S) profit for financial year 2008 is 24million after tax. We assume it can contribute 40% of last year profit about 10million for Carslbg(M).
Carslbg(M)'s EPS for 25sen is about = 77million profit, add 10 million is about 87million.
Estimated EPS will be 26sen, is equivalent to PE of 17sen on a very worst case scenario.
This worst case is indeed not an attractive one, couple with almost impossible for them to pay dividend in short term.

The good side :-
if Carlsbg(S) can maintain its contribution of 24million, then,
combined value 77 million + 24 million = 101million, and estimated EPS will be 32sen, a PE of 13.7 on current price. Base on valuation should worth around RM4.8.

Above only an estimation, does not reflect true value. Please do your own calculation before investing.

You cannot just add Carlsb (S) to Malaysia.

1) CS net profit FY08 = RM24m
- manufacturing contract from Thailand is duty free, but higher cost due to: 1) higher transportation cost; 2) manufacturing contract to 3rd party.

2) Adding to CM net profit of RM76m (which is conservation, considering they lost the mfg contract to Thailand as well as negative impact from hedging), then yes, you get about RM100m.

But, there is also other factors.

1) Cost savings from synergy?
A) You have to remember when CM lost the contract to Thailand, they had one unutilised line, so for them to operate this line (the additional cost would be minimal cos it is fixed cost). Hence, other than raw materials, others should +vely impact to the bottomline.
B) Also transportation cost to Singapore is more expansive than in Thailand. i.e. They send the products to Singapore by van from Malaysia, as compared to by boat to Singapore.

Assuming this additional new line to add back to the net profits by RM10m (cos they lost about that I think when they lost the contract to Thailand). Hence, you gain RM110m. And that is conservative.

You also get dble tax incentive from A&P expenses for exported products.

At 13x, it would be RM4.60.
At 15x, it would be RM5.36.

But might take awhile before it goes back to 15x.
And +5% net yield (from their dividend commitment for 5-years), you make the call.

If beer manufactured by Malaysia for export, most likely exempted from duty. More or less Same as duty free in Langkawi.



This post has been edited by SKY 1809: Jul 30 2009, 05:36 PM

As mentioned, it is just an estimation. Rough figure was used.
True, other factors like synergistic benefits may save some cost there for both side. In my case just ignore this portion, treat this as bonus.

The acquisition come to 370m, with current net cash of abt 200m, mean after acquisition, a borrowing of abt 170m will be required.
Cost of funding will need to take into cosideration as well....
One can only opt for share appreciation then.
Thus, in short term if it ever reach RM5 (14x - 15x), this will be my selling price.

This post has been edited by smartly: Jul 30 2009, 06:24 PM

For it to go back 15x, it needs able to pay generous dividend again. It is about yield play.

As it is a dividend stock with little room for grow locally except through acquisition, so market always look for dividend ability as the most important guidance.

Dispite profit drop 20% for 1H and acquiring of Carlsberg Singapore, still declaring 5sen dividend.

It is very poor financial result as compared to counterpart Guiness.

10-15 cents still can be expected as EPS full year should be around 20 cents, but still it shows declining trend since 2 years ago especially compared to Guiness (which register better revenue and steady profit). This is the most worrying part.

I think I need to stop drinking too much Guiness and more Carlsberg!!

Good one, i am currently holding abit of Carlsbg shares also. But sadly, almost 90% of my friends says that Carlsberg very smelly, they are prefer either Henikken or Tiger.....I hope Carlsberg do something about their ingredients or improve the taste of it....if not, i think its a lost course......

Then drink Tuborg! I do not know how Tuborg tastes here, but in Denmark, it is one of the Danish's favourite drink.

Like in overseas, I think maybe Carlsberg should start introducing their holiday brews (but I do not know if the cost is justifiable) to create excitement in the beer industry esp. in Malaysia. Like eg., maybe they can add certain spice for Chinese New Year brew, or sweetness in Christmas or Easter brew.



This post has been edited by ~butter: Sep 3 2009, 07:46 PM