CARLSBG: Buy the dip

9M23 earnings inline; expecting better 4Q23 result. CARLSBG’s 9M23 earnings of RM252.2m (-2.6% YoY) came in within our expectation at 73% of or full-year forecast. Looking into 4Q23, we expect CARLSBG to post stronger QoQ earnings, in anticipation of increased beers sales during the year-end festive season and achieve our full-year FY23 earnings projection (+8.7% YoY).

Sapporo in the game. As we enter FY24, CARLSBG's earnings will be influenced by the delisting of the Asahi brand effective in Jan 2024, resulting in an anticipated annual net profit impact of c.RM30m for the year. However, this impact will be cushioned by the introduction of Sapporo brands in FY24, as the group has entered into a MoU with Sapporo Breweries Limited for the exclusive manufacturing and distribution of Sapporo Premium Beer during the same period. All in, our projection indicates a modest 1.9% decline in CARLSBG's FY24 earnings, amounting to RM403.4m (vs FY23f: RM411.4m).

Greater upside following the share price slide.  Weighted by (i) the earnings impact from the delisting of the Asahi brand and (ii) concerns related to its operations in politically and economically unstable Sri Lanka, CARLSBG 's share price has experienced a 16.9% decrease YTD (vs HEIM's 13.4%). Nonetheless, we opine that the negatives are grossly priced in, and the risk-reward is skewing to the upside. The market appears to undervalue CARLSBG 's Singapore operations, which brings several advantages such as sales diversification, natural hedge against exchange rate fluctuations, reduced regulatory risk, and a brighter sales outlook fueled by robust purchasing power. Noteworthy is the resilience of CARLSBG 's Sri Lanka operations, with Lion Brewery recorded its best-ever earnings quarter in 3Q23, contrary to market concerns. Additionally, CARLSBG is currently trading at -1STD from its 5-year P/E mean of 27.3x.

Grossly oversold. Technically, CARLSBG is grossly oversold with key supports pegged at RM18.11-18.75 region. Notably, over the past three years, CARLSBG has demonstrated a 100% rebound rate in comparable technical situations, yielding an average return of 9.9%. Capitalizing on this historical trend, we recommend seizing the opportunity to buy the dip in CARLSBG, with the anticipation of a potential rebound towards the RM19.80-20.50-20.98 levels. Cut loss at RM17.74.

Collection range: RM18.11-18.75-19.00

Upside targets: RM19.80-20.50-20.98

Cut loss: RM17.74

Source: Hong Leong Investment Bank Research - 4 Dec 2023