• 1Q21 core net profit fell 9% yoy to RM66.4m as MCO2.0 affected sales in its Malaysian operations but results were broadly within our expectations
• A seasonally stronger quarter due to Chinese New Year (CNY) lifted revenue and CNP by 12.6% and 32.1% qoq respectively.
• We cut our 2021E earnings by 3.6% to factor in some potentially lower sales from renewed lockdown measures. Post revision, we arrive at a DCF-derived TP of RM25.44. Upgrade to BUY on recent stock-price weakness

1Q21 Core Net Profit at RM66.4m (-9.1% Yoy)

Carlsberg posted a weaker revenue of -9.8% yoy due to lower sales from its Malaysian segment (-19.9% yoy) as the re-imposition of a nationwide Movement Control Order (MCO 2.0) limited on-trade sales and face-to-face promotional activities. However, weaker sales were partially mitigated by its Singapore segment, which saw a sales improvement of 21.4% yoy as the country moved into Phase 3 of reopening of its economy. Besides, Singapore also saw higher growth in off-trade premium products. Excluding one-offs, core net profit came in at RM66.4m (-9.1% yoy) – accounting for 29% of ours and 26% of consensus estimates. We deem the results in-line with our expectations given the seasonally stronger quarter.

Sequentially Stronger Due to CNY

On a QoQ basis, Carlsberg’s revenue increased by 12.6% qoq due to CNY sales, relative easing of the lockdown in Malaysia in March and also easing of restrictions in Singapore. Carlsberg’s 1Q21 EBIT improved by 41.7% qoq mainly due to the higher revenue and lower marketing spend. This was, however, partially offset by lower EBIT from Singapore due to higher marketing spent to drive sales during the quarter. The group also announced the continuation of its quarterly dividend suspension until later in the year to preserve cash liquidity.

Upgrade to BUY Following Its Recent Price Retracement

While we remain optimistic on a potential recovery in 2H21, we cut our 2021E earnings by 3.6% to take into account of the re-imposition of a nationwide MCO in Malaysia and renewed lockdown measures in Singapore. Post our earnings change, we arrive at a slightly lower DCF-derived target price of RM25.44. We upgrade our call to a BUY given the share price weakness. Key downside risks: 1) longer-than-expected containment of Covid-19, 2) a sharp increase in raw-material prices, and 3) regulatory risks which could dampen sales volumes.

Source: Affin Hwang Research - 19 May 2021