Malaysia: Credit Suisse cut its target price on Carlsberg Brewery to 4.90 rgt

Credit Suisse cut its target price on Carlsberg Brewery Malaysia Bhd to 4.90 rgt from the previous 5.70, while keeping its "underperform" call on the stock, saying the lower target price reflects higher restructuring costs and promotional spending, Sharewatch reported June 13.

Carlsberg has undergone an internal restructuring and reorganization process in a bid to strengthen its commercial strategies.

In a note to clients, Credit Suisse said earnings estimates for Carlsberg Brewery Malaysia for financial years 2007 and 2008 have been reduced by 12-23 pct to factor in the one-time costs arising from the restructuring.

Promotional spending is on the rise following the emergence of a new local beer called Jazz, it added, noting that Jazz is undercutting existing players -- Carlsberg and Guinness -- by as much as 20 pct in terms of retail price.

"While Carlsberg and Guinness have well-established brands in Malaysia, Jazz may be able to steal some market share by attracting price-sensitive drinkers," the investment house said in the note.

Given that beer prices have risen sharply in recent years, and based on what happened in the tobacco industry, where illegal low-priced cigarettes eat into the market share of industry big names such as British American Tobacco (Malaysia) and JT International, "there is risk of a similar phenomenon for the brewery sector," the note said.

Moreover, beer prices may go up further as "there is always a chance that duties could be raised in the upcoming budget this September," Credit Suisse added.

Beer duties were left unchanged in the 2006 budget announced last year.

At the midday break, Carlsberg Brewery was steady at 4.92 rgt.

(1 usd = 3.46 rgt)

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