Carlsberg reported a 9M21 core PATAMI of RM126.5m (-2.3% YoY), this was below both our and street estimates at 55% and 60%, respectively. The underperformance was mainly due to a slower-than-expected recovery in sales. Although dine-in restrictions have eased for Malaysia and relaxed slightly in Singapore, the prolonged closure of entertainment venues and lack of foreign tourist could continue to be a drag on recovery. We cut our FY21-23 forecasts by 5-25% to account for the lower sales arising from the extended closure of entertainment venues. Maintain HOLD on Carlsberg, with a lower DCF-derived TP of RM20.40 (WACC: 8.0%, TG: 2.5%).

Missing estimates. Carlsberg’s 3Q21 core PATAMI of RM26.1m (-34.9% QoQ, -31.7% YoY) brought 9M21 core PATAMI to a sum of RM126.5m (-2.3% YoY). The results came in below our and consensus projections at 55% and 60% mainly due to slower-than-expected recovery in sales volume. 9M21 core PATAMI was arrived at after adjusting for forex losses of RM150k.

Dividend. None declared for 3Q21 (3Q20: none). 9M21: 10 sen vs 9M20: none.

QoQ. Revenue was flat owing to the reimplementation of movement restrictions in both Malaysia and Singapore, as well as a temporary operation suspension in its brewery for 1.5 months in 3Q (lifted on 16th August). Core PATAMI suffered a 34.9% decline mainly due to unabsorbed fixed cost from the temporary brewery closure, despite higher share of profits from Lion Brewery (+10.1%).

YoY. Revenue fell by 19.8% as a result of lower sales from both Singapore and Malaysia, following the temporary suspension in its brewery and also the tightening of movement restrictions in both countries. Core PATAMI also fell in tandem, by 31.7% compounded by the unabsorbed fixed cost and lower share of profits from Lion Brewery.

YTD. Sales growth in Singapore (+11.6%) was offset by the lower overall sales in Malaysia (-13.3%), resulting in revenue decreasing by 6.2%. Lower revenue in Malaysia was due to the 11-week brewery closure, prohibition of dining-in and lower sales during the Chinese New Year period (due to MCO 2.0). However, Singapore sales were lifted by premium brands growth in both off-trade and e-commerce channels. Core PATAMI was 2.3% lower due to the same reasons mentioned above.

Outlook. Although dine-in restrictions have eased in both Malaysia and Singapore (fully-vaccinated household members can dine out in groups of five soon) and nationwide lockdown was lifted in Sri Lanka, we opine that the lack of foreign tourist and the prolonged closure of entertainment venues (i.e nightclubs and bars) are likely to continue to be a drag on its recovery. Its plans to introduce new products and year end promotions to help accelerate the recoveries in on-trade and off-trade are not likely move the needle

Forecast. We revise our FY21-23 forecasts downward by 5-25% to account for the lower sales arising from the extended closure of entertainment venues.

Maintain HOLD. TP: RM20.40. Our DCF-derived TP is lowered to RM20.40 (WACC: 8.0%, TG: 2.5%), from RM21.75 after our earnings revision. With the limited upside, we maintain HOLD call on Carlsberg.

Source: Hong Leong Investment Bank Research - 15 Nov 2021