Carlsberg reported a 9M22 core net profit of RM259.9m (+88.4% YoY), which came in above our/consensus projections at 82%/85%. 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 6-8% as we pencil in a higher sales volume assumption s and ASP. Subsequently, our TP is raised to RM30.77 (from RM28.88), implying a PE multiple of 27.8x on its FY23f EPS of 103.9sen. Reiterate BUY rating on Carlsberg.

Exceeded expectations. Carlsberg’s 3Q22 core net profit of RM78.7m (-11.0% QoQ, +150.7% YoY) brought 1H22’s sum to RM259.9m (+88.4% YoY). The results were above our/consensus expectations at 82%/85% of the full-year forecast. The positive surprise was due to higher-than-expected beer demand coupled with better margin amid the premiumization push. 9M22 core net profit was arrived after adjusting for EIs (i.e. gain on PPE disposal and forex loss) amounting to RM1.44m.

Dividend. Declared third interim DPS of 19sen (3Q21: None), which goes ex on 25 Nov 2022. 9M22 DPS amounted to 63sen vs 9M21’s 10sen.

QoQ. Lower sales volume was seen in both Malaysia and Singapore markets as sales was front-loaded in 2Q22 before the July price hike. Despite that, the group top line was flattish at -0.5%, as the higher revenue from Singapore market (+3.3%) due to the exchange rate effect and the price hike have offset the lower sales from Malaysia market (-1.7%). Meanwhile, the share of profits in LBCP surged 371.9% to RM6.8m. All in, with the EBIT margin contracted by 4.1ppts amid elevated raw material prices, core PATAMI eased by 12.0%.

YoY. Revenue chalked a 63% growth due to low base effect –brewery’s operations were suspended during that period (2 June 2021 till 15 August 2021) amidst the lockdown. Geographically, Malaysia and Singapore markets registered a robust 94.4% and 13.3% growth, while the share of profits in LBCP surged by 131.9%. In turn, core PATAMI rose by 147.8%.

YTD. Topline rose by 46.3% 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. 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 87.8%.

Outlook. Carlsberg is anticipated to post a commendable 4Q22 result, premised by (i) price hike; (ii) seasonally strong foreign tourist arrivals; (iii) the 2022 FIFA world cup and (iv) Singapore Grand Prix. We believe the depreciating ringgit will continue to lift Carlsberg’s export sales (accounted c.30% of the group sales) and act as a natural hedge to the higher raw material costs. We are also not overly concerned about the potential demand erosion following Carlsberg raising its beer prices on 1 July, considering that beer remains the cheapest alcoholic drink in the market, thus relatively inelastic demand. Separately, we applaud the government initiatives on curbing alcohol smuggling in Budget 2023, which is a boon to brewers whose sales have been cannibalized by the illicit.

Forecast. We revise our FY22/23/24f forecasts upwards by 8/8/6% as we pencil in a higher sales volume assumption and ASP.

Maintain BUY. TP: RM30.77. Post-earnings adjustment, Our TP is subsequently raised to RM30.77 (from RM28.88 previously), implying a PE valuation of 27.8x (at its 5-year mean) on its FY23f EPS of 112.7 sen. Maintain BUY rating on Carlsberg.

Source: Hong Leong Investment Bank Research - 14 Nov 2022