Carlsberg, The Story

There are only 3 listed companies under the sub-sector of Breweries in KLSE/Bursa Malaysia. Guinness Anchor, Carlsberg and the third is a distributor of wine. Napex, which brews Jazz and Starker(served at the very popular Overtime chain of pubs) is not listed.
Since I have covered Guinness Anchor Berhad (GAB) here, here and here, I might as well do it for its strongest competitor. Yea, That Calls for a Carlsberg.

Carlsberg Breweries Berhad is a direct competitor of Guinness Anchor Berhad, for it does the same thing. Brews, markets and distributes beer,stout and shandy. Its product line up is more extensive compared to GAB, which has 10 brands. Carlsberg has more than double.

Beer Brewed Locally
Carlsberg
Skol
Tuborg (Premium Beer)

Stout Brewed Locally
Danish Royal Stout
Connor's (Premium Stout)

Super Premium Beer
Kronenbourg 1664

Imported Beer
Corona
Tetleys

Non-alchoholic Produced Locally
Nutrimalt
Jolly Shandy

By subsidiary
Luen Heng F&B Sdn Bhd
Becks
Budweiser
Crown Lager
Foster's
Franziskaner
Hoegaarden
Lowen Brau
Pure Blonde
Victoria Bitter
Warsteiner
Stella Artois
Leffe
Erdinger
Asahi

By Joint Controlled Entity
Cottingham & Co Ltd (Taiwan)
Beers, spirits, and alcoholic beverage
Beers include lagers, ales, dark beers, wheat beers and stouts.
Brands are Carlsberg,Corona Extra, Erdinger, Guinness, Kronenbourg 1664 and Tetley's
Also distributes Glenfarclas single malt Scotch whisky

By Associate Entity
Lion Brewery (Ceylon) in Sri Lanka
Lion Lager, Carlsberg, Strong Beer, Special Brew and Lion Stout.

Carlsberg Malaysia has presense in countries outside Malaysia unlike GAB which only operates in Malaysia.
Wholly owned subsidiaries of Carlsberg Malaysia are Carlsberg Marketing Sdn Bhd & Carlsberg Singapore Pte Ltd.
Carlsberg Msia has a 70% stake in Luen Heng F&B Sdn Bhd.
Carlsberg Malaysia makes its presense in Taiwan via jointly controlled Entities, Carlsberg Distributors Taiwan Limited ('CDTL') 50% and Carlsberg Cottingham 75%. In Sri Lanka, Carlsberg Malaysia has an investment of 24.6% in Lion Brewery (Ceylon) PLC.

How do these entities contribute to Carlsberg Malaysia Bhd's bottom line?
Operations in Malaysia contributes to 71% of profit. Singapore 29%. And others made a loss of 2 million in 2010.
In term of revenue, Malaysia contributes 76%, Singapore 23% and others 1%.
My discussion hereafter will focus on Carlsberg Malaysia and Singapore.

Mainstream beer accounts for 80% of its revenue. Premium beer, 10% of revenue, will be the segment targetted for growth. 3 years ago, Carlsberg has less than 5% market share in the premium beer segment. Now, Hoegaarden and Kronenbourg have a market share of 20% in premium beer market. MD Soren Ravn expects its premium beers to account for 40% of revenue within the next 3-5 years once Carlsberg starts brewing them in-house. The plan is to brew 2 premium brands in 2012. My guess is Hoegaarden and Kronenbourg. Makes better sense right?


How does brewing premium beer in-house translate into higher earnings?
First, Carlsberg saves on logistics costs. Second, it enjoys an exemption of RM5 per litre on import duty.
By the way, GAB brews Kilkenny locally.

In Oct 2009, Carlsberg Berhad acquired Carlsberg Singapore for 370 million. Carlsberg Singapore has 20% share of the beer and stout market in Singapore. It is at second position after market leader Asia Pacific Breweries (APB) that commands 63% market share. Tiger rocks Singapore. Annual beer consumption per person is 20 litres which is surprisingly the same as Malaysia. I had the impression that Singaporeans party harder and thus guzzle more beer.
The million dollar question... Can Carlsberg Singapore wrestle away some market share from APB? It has doubled its market share from 10% in the 1990s to 20% currently. Garnering more market share is an uphill battle due to strong branding of Tiger in Singapore. Let's just assume Carlsberg Singapore maintains its market share of 20%, Carlsberg Bhd still enjoys some upside of synergy in marketing and better utilization of capacity at its Shah Alam brewery. I'll be keeping an eye on Carlsberg Singapore growth.

Dividend and share price
Carlsberg is a dividend stock. Dividend payout took a beating in 2008 and 2009 due to the acquisition of Carlsberg Singapore, draining its coffers dry. Last year, 2010, gross dividend yield was 4%. And this year, total of 0.555 of dividend has been distributed. Gross yield of 7% at current market price of 7.25. Welcome back to the dividend camp Carlsberg.
CAGR of Carlsberg from 2007-2011 is 14.35%. A little lower than GAB at 19%. But still a fantastic return none the less.The trend of Carlsberg's stock price is somewhat similiar to GAB. Resilient and rising steadily.

Major event in 2012 is the UEFA European Cup, of which the group is the official sponsor. Drink up people.


Like GAB, Carlsberg also faces the problem of increasing costs of raw material, mainly malt which accounts for 30% of total raw material costs. Carlsberg counters by hedging up to 85% of its 2012 malt requirements.

Brewers escaped an excise hike in Budget 2011. But there is still a risk of off-budget duty hike.

However, Carlsberg has been able to pass costs to consumer. A raise of 3-5% in price may happen in year 2012 and is likely not to affect sales.

In Summary
The story on Carlsberg is a tad more interesting than Guinness. Carlsberg sells a wide range of beer. It makes sure there is beer for every segment of consumer out there. Carlsberg has also more potential to increase its profit. First, its plan to brew 2 premium beer in-house. Second, at 20% market share, Carlsberg Singapore has room to grow. In the stout segment, we can forget about Royal Stout. Stout here goes unanimously with Guinness. I favor the story on Carlsberg as there is more to look forward to.