By G. Sharmila
Carlsberg Malaysia announced last Friday that it was selling its 70% stake in subsidiary Luen Heng F&B Sdn Bhd for RM19.5 million to focus on its core business. Analysts are neutral on the stake sale; however, other challenges await the company, they say.
Business model: Last Friday, Carlsberg Brewery (M) Bhd (Carlsberg Malaysia) announced that it had agreed to the sale of its 70% shareholding in its subsidiary Luen Heng F&B Sdn Bhd (LHFB) to Capriwood Sdn Bhd for a total consideration of RM19.5 million. LHFB is an established distributor and supplier of imported beers, wines and spirits.
In a press statement accompanying the Bursa filing, the company said that the strategic intent of its move in divesting its stake in LHFB is aligned with its parent company Carlsberg Group’s strategy to “Focus on beer as core” and to maximise the return on capital invested.
“By focusing on beer and divesting its wine and spirits businesses, the brewer will continue to sell selected imported beers by LHFB in order to offer the most comprehensive locally brewed and imported range of beers to its customers and consumers.
“The longstanding business synergies between the brewer and the distributor shall continue going forward. Proceeds from the sale of shareholding will be re-invested to our commercial activities behind our core beer brands and are not expected to have a material impact on Carlsberg Malaysia’s 2015 second quarter results,” the company said in the statement.
Carlsberg Malaysia was formed in 1969 and began brewing Carlsberg Green Label beer locally in 1972. According to its corporate website, the company’s brewery manufactures and distributes beers, stout and other beverages mainly in the Malaysian market. Its brand portfolio includes Carlsberg, Asahi Super Dry, Somersby and Kronenbourg 1664.
Shareholders and management: Heading Carlsberg Malaysia is 48-year-old Denmark national Henrik Juel Andersen, who has been managing director of the company since July 2013. He has been with the Carlsberg Group for over 20 years. Prior to his current position at Carlsberg Malaysia, Andersen was the regional chief executive officer of Carlsberg Indochina, where he oversaw Carlsberg operations in Vietnam, Thailand, Laos, Myanmar and Cambodia.
As of May 18, the company’s major shareholders include Carlsberg A/S (with a 50.7% stake) and Great Eastern Life Assurance (4.3% stake).
Share performance: The company’s share price has been on the uptrend since last year. As of May 19, the stock had a one-year share price return of 11.55% according to data from Bloomberg. It outperformed the FBM KLCI, which as of May 19 had a one-year return of -0.88%.
Data from Reuters show that trading in the stock is traditionally volatile, as it has a beta coefficient of 1.15. A beta coefficient of 1 and above generally indicates trading in a stock is more volatile than its peers on the stock exchange.
The company has a healthy dividend yield, which was at 5.6% last year.
What analysts think: Of analysts tracked by KINIBIZ, three had “hold” ratings on the stock, one with a “buy” rating and another with a “market perform” rating. Those who had “hold” ratings on the stock were relatively neutral on the LHFB stake sale, saying that it would have minimal financial impact on Carlsberg Malaysia.
“We are neutral on the announcement as we see this divestment as a strategic move to free up working capital. Recall that LHFB is also in the business of distributing wines and liquor, which is highly capital intensive, due to the high value of the products and the need to keep inventory.
“As such, the turnover of wines and liquor is longer in comparison to beers, trapping capital that could be more efficiently utilised,” HLIB Research said, commenting on the stake sale.
Maybank IB Research noted that the financial impact “is manageable”, for LHFB contributed to just 3% of the company’s FY14 net profit. It said that Carlsberg Malaysia will see a one-off loss of RM10.9 million in FY15 from the disposal but positively, proceeds of RM19.5 million can be deployed for its core business which focuses on beer, stout and cider.
“Our earnings forecasts are unchanged. The expected loss upon the disposal of Luen Heng would be buffered by stronger beer sales in Malaysia. We understand that Malaysia’s malt liquor market volumes are gradually recovering post a dip of 6% in CY14,” Maybank added.
Kenanga Research, which has a “market perform” rating on the stock, has some other concerns, however. “We maintain our neutral stance on the outlook of the group in view of the implementation of GST (goods and services tax), as well as the ongoing lawsuit in which the bill of demand amounting to RM56.4 million (25.6% of FY15E net profit) is expected to have potential significant financial impact to the group,” it said.
Earnings forecast:
StockStalk: We are inclined to believe the analysts, in that the LHFB stake disposal will actually benefit Carlsberg Malaysia in the long run. However, the jury remains out about the extent to which the implementation of GST may affect consumer spending on alcohol, which will impact the brewer’s business.
The other concern we have – and we think investors will too – is the financial impact of the ongoing lawsuit involving the company. On the bright side, the company does have a dividend yield of close to 6%, which makes it an attractive dividend play for the more risk-attuned investor.
Due to the risks surrounding GST and the lawsuit, we wouldn’t recommend that new or risk-averse investors put their money in this stock just yet. The best thing to do is to wait until the dust settles on these matters, or, if investors are really eager, to buy and hold the stock instead of actively trading in it.
________________________________________________________________________
Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
You must be logged in to post a comment.