• 9M20 core net profit came in at RM125.4m (-44% yoy), accounting for 62% and 63% of our and consensus full-year estimates – below expectations.
• Nevertheless, 3Q20 registered strong qoq improvement as both revenue and core earnings rose to RM435m (+52%) and RM34.5m (>100%) respectively.
• We cut our 2020 earnings forecast by -12.3% to RM176.7m, largely to input higher opex, but keep 2021/22E unchanged. We tweak lower our WACC assumption to 7.5% (from 8.4%) as the worst looks to have passed, coupled with a more upbeat sentiment on vaccine discovery going into 2021. Upgrade to HOLD with a higher DCF-derived TP of RM23.15.

9M20 core net profit RM125.4m; below expectations

Carlsberg posted a 9M20 revenue of RM1.3bn (-22% yoy) on the back of dismal sales in both Malaysia and Singapore operations owing to lockdown measures. Notwithstanding cost control initiatives (lower marketing spend and overall opex reduction), EBITDA margins shed -4.6ppt, flowing through from lower sales. Adjusting for one-off items, core net profit came in below expectations at RM125.4m (-44% yoy), accounting for only 62% and 63% of our and consensus full-year estimates. Variance to ours was on higher-thanexpected operational costs. At this juncture, suspension of interim dividend payments remains in place to ensure a prudent approach to preserving cash and liquidity.

Worst likely behind the group

On a qoq basis, both revenue and earnings saw strong improvement to RM435.3m (+52%) and RM34.5m (>100%) respectively, in tandem with recovery off 2Q20’s low base. Looking ahead, we believe the worst of the quarters have likely passed, and the group should see subsequent recovery heading into 2021, when we expect earnings to rise by c.37% yoy as higher volume demand transpires off a low base. Elsewhere, to cope with increasingly tough operating conditions, the group is hastening its cost control measures, amongst others, by reallocating investments into e-commerce and off-trade channels.

Upgrading to HOLD

We cut our 2020 earnings forecast by 12.3% to input higher operational costs, but keep 2021-22E estimates intact. Its share price saw a strong run, up by c.20% over the past week, largely due to upbeat sentiment with regards to positive news flow on a Covid-19 vaccine. Post revision, we upgrade Carlsberg to a HOLD rating, with a higher TP of RM23.15 as we lower our WACC assumption to 7.5% (from 8.4%) with the worst likely to have passed and also to reflect the gradually upbeat market sentiment with a vaccine availability heading into 2021.