Carlsberg could be a trading BUY

Background

Carlsberg Brewery Malaysia Bhd ('CBMB') announced that it had entered into a Memorandum of Understanding (“MOU”) with Carlsberg Breweries A/S (“Carlsberg”), the holding company of CBMB, to acquire the entire equity interest in Carlsberg Singapore Pte Ltd (“Carlsberg Singapore”) from Carlsberg Asia Pte Ltd (“CAPL”), a wholly-owned subsidiary of Carlsberg at the consideration of RM370 million in cash subject to final evaluation. The deal is expected to be completed by November 1, 2009. Other pertinent details are:
1) Carlsberg shall provide CBMB a guarantee for Carlsberg Singapore’s average annual profit after tax For FY2009 & FY2010.
2) The deal should be earnings accretive since it is a cash deal, with the bulk of the cash settlement coming from CBMB's cash reserves (of RM231 million as at 31/3/2009) and the balance from bank borrowings.

Recent Financial Results

The last 4 quarters' net profit was lower than the preceding 4 quarters' net profit due to lower contribution from contract manufacturing for the Singapore market, higher raw material price, strengthening of the US Dollar as well as exceptional gain from sale of residential in 2007 of RM5.2 million.



Valuation

CBMB (closed at RM4.26 today) is now trading at a trailing PE of 18 times (based on last 4 quarters' EPS of 23 sen). This does not include any contribution from Carlsberg Singapore since no details of the latter's performance is given.

Technical Outlook

From Chart 1 below, we can see that CBMB has broken above its medium-term downtrend line at RM3.50 in March. A short-term uptrend- with higher 'lows' and higher 'highs'- can clearly be sen. We can see that CBMB has just broken above its rising wedge at RM4.00 today (see Chart 2). The next resistance is at RM4.50 & thereafter RM5.00.


Chart 1: CBMB's weekly chart as at July 29, 2009 (Source: Quickchart)


Chart 2: CBMB's daily chart as at July 29, 2009 (Source: Quickchart)

Conclusion

For now, CBMB could be a good trading BUY based on technical consideration.