Carlsbg- profit jumped on strong CNY sales

Results Update

Carlsbg announced a good set of results for QE31/3/2011, due mainly to higher CNY sales. Net profit increased by 60.5% q-o-q or 29.3% y-o-y to RM48.9 million while turnvoer increased by 24.9% q-o-q or 7.6% y-o-y to RM407 million. If we compared the the total sales & profit for QE31/3/2011 & QE31/12/2010 with the same periods one year ago, we see an increase in turnover of 8% & profit of 37%.

As you are aware, I wasn't impressed by Carlsbg's financial performance over the past 3 quarters (QE30/6/2010 to QE31/12/2010). Should we change our earlier negative impression of this stock by looking at the latest results (for QE31/3/2011)?


Table 1: Carlsbg's last 8 quarterly results



Chart 1: Carlsbg's last 22 quarterly results

Valuation

Carlsbg (closed at RM7.23 yesterday) is now trading at a PE of 14 times (based on an annualized EPS of 52 sen). The annualized EPS is in turn computed based on the EPS for QE31/3/2011 & QE31/12/2010. Based on the healthy growth in both top-line & bottom-line (noted above), I believe Carlsbg could command a higher PE, possibly 16 times (as compared to a PE of 18 times for GAB). As such, Carlsbg could trade up to RM8.32.

Technical Outlook

Carlsbg has recently tested its all-time high of about RM8.00. The price has eased off after the company paid off a dividend of 50.5 sen (comprising a final dividend of 7.5 sen & a special dividend of 43 sen).

The past 12 months' price run-up is one of the steepest rally Carlsbg has ever enjoyed. It is comparable to the price run-up in 1996. Did the stock rally because of strong growth to come or was it due to the special dividend? Surely, a special dividend of 43 sen cannot fuel such a strong rally? Finally- the million question- can this rally sustain?


Chart 2: Carlsbg's monthly chart as at May 3, 2011 (Source: Tradesignum)

Conclusion

Based on the latest strong financial results & the recent correction in the share price, I would revise my recommendation for Carlsbg from a SELL to a HOLD. The stock could be a good stock for long-term investment if the growth- as promised by the latest quarterly results- can sustain.