Carlsberg reported a 1H22 core net profit of RM181.1m (+70.1% YoY), which came in above our/consensus projections at 61%/65%. The positive result surprise was due to a stronger-than-expected beer demand coupled with better margin amid the premiumization push. We raise our earnings forecasts for FY22-24f by 2-6% as we pencil in a higher sales volume assumption s. Subsequently, our TP is raised to RM28.88 (from RM27.08), implying a PE multiple of 27.8x on its FY23f EPS of 103.9sen. Reiterate BUY rating on Carlsberg.

Exceeded expectations. Carlsberg’s 2Q22 core net profit of RM88.4m (-4.6% QoQ, +120.3% YoY) brought 1H22’s sum to RM181.1m (+70.1% YoY). The results were above our/consensus expectations at 61%/65% of full year forecast. The positive surprise was due to higher-than-expected beer demand couple with better margin amid the premiumization push. 1H22 core net profit was arrived after adjusting for EIs (i.e. gain on PPE disposal and forex loss) amounting to RM62k.

Dividend. Declared DPS of 22 sen (2Q21: 10 sen), which goes ex on 2 September 2022. 1H22 DPS amounted to 44 sen vs 1H21’s 10 sen.

QoQ. Revenue contracted 12.2% due to the high base effect – first quarter had seasonally stronger sales due to Chinese New Year. In terms of geographical sales, Malaysia and Singapore markets registered a 5.5% and 27.3% declines in revenue. The share of profits in LBCP also plunged 78.6% due to the one-time surcharge tax in Sri Lanka. Nevertheless, EBIT margin advanced 4.4ppts to 21.9% due to improved premiumization and pack mix, resulting in core PATAMI to ease at a mere 4.6%.

YoY. Revenue chalked a 64% growth, with Malaysia and Singapore markets registering a robust 76.1% and 37.5% growths, respectively. This was driven by the low base effect in 1H21, where it was hit by various lockdown restrictions and the suspension of brewery operation. In turn, core PATAMI surged by 120.3%.

YTD. Revenue rose by 39.4% as a result of more robust sales performance during the 1Q festive period and pent-up demand for out-of-home drinking following the lifting of restrictions. Growth in sales was seen across all segments, with alcohol-free-brews, premium, and mainstream expanded by 131%, 41%, and 32%, respectively. On top of that, better EBIT margin due to better operating leverage and favourable product mix had lifted core PATAMI to grow at a stronger pace to 70.1%.

Outlook. We reckon that 2H22 beer sales will be supported by three drivers (i) the strong return of foreign tourists; (ii) the 2022 FIFA world cup; and (iii) pent-up demand for out-of-home drinking. We view the depreciating ringgit as a catalyst driving local tourism, which will lead to a stronger foreign tourist arrival in 2H22, thus boosting on trade sales. We also note that major football event (such as FIFA 2022) bodes well for on-trade beer sales, evidenced by Carlsberg’s c.16% YoY spike (Figure #2) in its revenue during FIFA2014 and FIFA2018 periods. The abovementioned factors, coupled with better operating leverage (absence of forced brewery closures), should cushion any demand erosion following the price hike effective in July.

Forecast. We revise our FY22/23/24f forecasts upwards by 6/2/2% as we pencil in a higher sales volume assumptions to reflect the stronger-than-expected beers demand recovery

Maintain BUY. TP: RM28.88. Post-earnings adjustment, we roll over our valuation base year to FY23. Our TP is subsequently raised to RM28.88 (from RM27.08 previously), implying a PE valuation of 27.8x (at its 5-year mean) on its FY23f EPS of 103.9 sen. Maintain BUY rating on Carlsberg.

Source: Hong Leong Investment Bank Research - 22 Aug 2022