Carlsberg Brewery Malaysia Bhd’s (Carlsberg) 4Q23 results missed Maybank Investment Bank’s (Maybank IB) expectations on higher-than-expected operating expenses.
Consequently, the research house cuts its FY24E and FY25E earnings by 7% per annum and introduced FY26E forecasts.
“Carlsberg will heighten advertising and promotion (A&P) campaigns to mitigate the the prolonged impact of weak consumer spending but ongoing operating challenges may delay group earnings recovery.
“At 19x FY24E price-earning ratio (PER), Carlsberg is trading at -0.5SD below its long term (LT) mean PER of 23x.
However, it maintained its BUY call with lower discounted cash flow (DCF)-target price (TP) of RM21, with weighted average cost of capital (WACC) of 8%, LT growth of 3% with a decent yield of 4.7%.
Maybank IB said the brewer’s FY23 core net profit of RM322 million, a mere 1% decline year-on-year (YoY), accounts for 93% and 96% of the research house and consensus full-year earnings estimates.
“The earnings shortfall was mainly due to higher-than-expected operating expenses. FY23 revenue of RM2.26 billion, a decline of 6% YoY was in-line, at 97% of our estimate.
“A final dividend per share (DPS) of 31sen was declared which brings FY23 DPS to 93 sen, with dividend pay out ration of 85%.”
The research house said the group’s decline in revenue for the quarter under review was due to weaker sales performance in Malaysia, a decline of 5% YoY, and Singapore, and a decrease of 6% YoY, along with a higher base comparison from pent-up demand in 4Q22.
It was reported that the dip in revenue was due to shorter sales period during Chinese New Year last year, and consumers pulling back on discretionary spending.
“4Q23 core net profit rose 5% YoY largely due to a lower effective tax rate of 11%, a decline by 18.6ppts YoY in the absence of Cukai Makmur. Carlsberg’s FY23 mainstream and premium sales weakened by 8% YoY and 15% YoY respectively,” it said.
Aside from that, Carlsberg is facing ongoing operational headwinds, as product affordability, consumer inflationary pressures and rising group input costs hinder meaningful earnings recovery.
“Separately, it has earmarked RM92 million capex in FY24E to install a new canning line and filtration system for better production flexibility and lower energy and water consumption,” it said.
Meanwhile, RHB Investment Bank (RHB IB) is slightly optimistic on Carlsberg’s outlook, saying that soft landing indicating resilient demand for beer.
“Carlsberg’s FY23 results missed expectations on weaker-than-expected profit margin. That said, we continue to like the brewery sector for the steady demand for beer and continuous operational efficiency gains to mitigate cost inflation.
“We believe the current valuation at -1.5SD is unwarranted considering the muted regulatory risks, with political stability and the largely contained contrabands market. Generous dividend payout ratio will be supported by robust cash flow generation,” it said.
Post results, the research house trimmed FY24F and FY25F earnings by 3% and introduce FY26F earnings, an increase of 8% YoY.
Correspondingly, its dividend discount model (DDM)-derived TP drops to RM22.20, inclusive of a 6% environmental, social and governance (ESG) premium, which implies 20x FY24F P/E and represents a discount to peer Heineken Malaysia (HEIM MK, BUY, TP: RM30).
“This is justified by the latter’s market leadership in Malaysia and higher dividend payout ratio.”
Quarter-on-quarter (QoQ), the group’s 4Q23 revenue jumped 13% to RM581 million on positive year-end seasonality but core net profit fell 6% due to marketing expenses incurred ahead of the Lunar New Year.
As for outlook, as mentioned, RHB IB expects Carlsberg’s topline growth to be sustained by the relatively inelastic demand for beer and
healthy legal total industry volume (TIV).
“In addition, the premiumisation strategy will continue to drive favourable average selling price (ASP)and target the higher income groups that are more insulated from the inflationary pressures.
“Meanwhile, the company announced plans to further upgrade its production facilities to drive operational efficiency.
“This will be effective in mitigating any input cost inflation arising from unfavourable FX and hike in service tax with management expecting commodity prices to stay stable,” it added.
