Maybank Investment believes the outlook for the brewery industry as a whole remains positive in tandem with the reopening of the economy and the relatively high degree of product stickiness that the industry enjoys. Further sales recovery should also arise once international tourism picks up. Hence, the investment bank maintains a buy call on Carlsberg Brewery (CAB) shares with an unchanged price of MYR27.80.
CAB’s 3Q22 sales momentum is expected to be softer QoQ in light of price hikes along with weaker consumer disposable income and sentiment. The group raised on and off-trade product prices by an estimated 6%-8% in 3Q22 and it is unlikely that another round of price hikes will occur for the rest of FY22. Meanwhile, CAB’s sales volume has not recovered to pre-pandemic levels yet but on-trade sales are recovering strongly YoY along with continued growth in off-trade and eCommerce sales, albeit at a slower pace. We have imputed for volumes to revert to pre-pandemic levels in FY23.
The group’s major raw material components are malt and aluminum cans, of which c.80% of CAB’s annual requirement has been hedged through fixed price contracts. Although raw material ASPs have eased in recent months, the cost benefits will only arise from FY23 onwards. Malt purchases are CAB’s largest exposure to USD/MYR currency appreciation however the group’s export sales in SGD and USD will act as a natural hedge to any unfavourable foreign exchange moves in the near term.
A heavy CAPEX commitment of MYR110m in FY22 is earmarked for the replacement of its existing bottling line with two new lines. This exercise is targeted to be completed by 4Q22 and will subsequently increase production efficiencies and cost savings in relation to utilities, water usage, and labour. With this, the model assumed for group depreciation expenses to step up by c.MYR25m p.a. from FY23 onwards.
