1HFY20 CNP (-42% YoY) and the absence of dividend are in line with expectations. We believe the group is likely to enjoy sequential improvements moving forward, expected to be driven by a pick-up in beer consumption in 2H. Nonetheless, the lack of visibility on dividend pay-out for FY20 could be a dampener. Upgrade to MARKET PERFORM with higher TP of RM24.25 (from RM21.00) following earnings and valuations upgrade.

Broadly within. 1HFY20 core net profit (CNP) of RM88.5m came in broadly within expectations at 43% and 37% of our and consensus’ forecasts, respectively, as we expect post-lock down recovery to fuel a stronger 2H. The absence of dividend is also within expectation, as the group had earlier announced the suspension of the quarterly dividend payments.

Unveiling Covid-19 impact. YoY, 1HFY20 revenue fell 23% to RM877.1m, largely dampened by (i) the suspension of its brewery during MCO, coupled with (ii) weaker contribution from on-trade channels as a portion of the modern on-trade channels (i.e. pubs and entertainment outlets) are still not allowed to operate even after the easing of movement restrictions. These were partially mitigated by the group’s effort to exercise tighter cost controls under its “Fund the Journey” initiative, consequently leading to a 42% plunge in earnings. Both its Malaysia and Singapore operations recorded respective decline of 43% and 57% in operating profits, similarly diminished by the foresaid reasons.

QoQ,2QFY20 revenue and CNP dropped by 51% and 79%, respectively, likewise due to the aforementioned Covid-19 disruptions.

Poised for recovery. Barring a second wave of infections, the group is likely to experience QoQ improvements moving forward, backed by (i) resumption of its brewery operations from May, coupled with (ii) anticipation for a pick-up in overall beer demand in 2H, likely supported by the pent-up demand post-lockdown in both Malaysia and Singapore. Nonetheless, we note that the road to recovery could be partially shadowed by the closure of selective modern on-trade channels that are still prohibited from operating, as well as the postponement of major sporting events. In the meantime, the group remains committed to their “Fund the journey” initiative by continuously driving cost optimisation exercises and redirecting marketing efforts towards digital campaigns to drive growth from its off-trade and e-commerce channels.
Post-results, we pumped our FY20E and FY21E earnings forecasts up by 2.4% and 2.2%, respectively, penciling in slightly stronger post lockdown growth expectations. We also revised our dividend pay-out assumption to 50% for FY20 and 97% for FY21.

Upgrade to MARKET PERFORM with higher TP of RM24.25 (from RM21.00), following the earnings upgrade and adjusted higher ascribed FY21E PER of 26.0x (from 23.0x) which is closely in-line with its 3-year mean. While we still like the group for its premiumization long-term prospects and anticipation of a stronger 2H, we are nonetheless cautious over its near-term outlook being clouded by: (i) potential lower dividend pay-out for the year, coupled with (ii) uncertainty surrounding the speed of its earnings recovery in the absence of a vaccine. Risks to our call include: (i) higher/lower-than-expected sales volume, and (ii) hike in excise duty

Source: Kenanga Research - 17 Aug 2020