Carlsberg reported FY22 core net profit of RM328.8m (+52.6% YoY), which came within ours and consensus projections at 96%/95% of full year forecasts, respectively. Going into FY23, we expect Carlsberg to record stronger earnings, premised by the full reflection of ASP hikes and stronger foreign tourist arrivals that drive beer sales. We maintain BUY with a TP of RM30.77, implying a PE multiple of 27.8x on its FY23f EPS of 112.7sen.

Within expectations. Carlsberg’s 4Q22 core net profit of RM69.8m (-10.3% QoQ, - 8.3% YoY) brought FY22 sum to RM328.8m (+53.6% YoY). The results was within ours/consensus expectation at 96%/95% of full-year forecasts. FY22 core net profit was arrived at after adjusting EIs (i.e. one-off expenses pertaining to the disposal of the old bottling line and forex loss) of RM 11.8m.

Dividend. Recommended final DPS of 25 sen (4Q21: 46 sen), subject to shareholders’ approval at the upcoming AGM. Should this materialize, FY22 DPS of 88 sen (vs FY21’s 56 sen) implies a payout ratio of 81%.

QoQ. Both Singapore (+23.4%) and Malaysia (+1.4%) markets recorded stronger sales, as the sales volume was boosted by the year-end seasonality effect, alongside FIFA22 and the Singapore Prix Final. Meanwhile, the share of profits in LBCP (25% associate) contracted 4.7% to RM6.5m. Although the group's revenue has increased by 13%, core PATAMI contracted -10.3% due to higher marketing investment for CNY promotion and Winter Football activations.

YoY. Revenue rose by 36.1% due to better consumer sentiment following Malaysia’s transition to endemicity in April 2022. Geographically, Malaysia and Singapore markets registered 8.4% and 25.3% growth, while the share of profits in LBCP rose by 16.1%. Core PATAMI, however, declined by 8.3% due to the higher marketing investment as mentioned above.

YTD. Top line rose by 36.1% 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 at a stronger pace of 53.6%.

Outlook. Despite the absence of a major football event in FY23 and the fading of pent up demand, beer sales volume is anticipated to stay resilient in FY23 thanks to a trifecta of factors: (i) the return of beer demand after consumers acclimate to the previous price hikes; (ii) continued recovery in tourist arrivals; and (iii) potential reduction in illicit market share. Among these factors, the return of foreign tourists is anticipated to be particularly potent in driving the volume of beer sales in FY23, given that Malaysia and Singapore’s tourist arrivals thus far are still far below pre-pandemic levels. Meanwhile, should there be no major changes in “Budget 2023-2.0,” the measures introduced to curb smuggling activities bode well for brewers, whereby market share of illicit beer is estimated to be around 20% and 80% in Peninsular and East Malaysia, respectively, based on an estimation from the Confederation of Malaysian Brewers Berhad in 2018.

Forecast. Unchanged

Maintain BUY, with an unchanged TP of RM30.77 based on a PE multiplier of 27.8x (at its 5-year mean) on its FY23f EPS of 112.7sen. We like Carlsberg’s relatively diversified sales exposure (c.60% Malaysia, 30% Singapore). The sector also offers continued exposure to the reopening play via the tourism angle which still has legs to go.

Source: Hong Leong Investment Bank Research - 24 Feb 2023