FY20 CNP of RM175.4m (-44% YoY) and the declared dividend of 51.0 sen came in above expectations, likely due to better-than-expected beer volumes in 4Q. Post-results, we trim FY21E earnings downwards by 5% as we pencilled in softer recovery amid the re-imposition of movement restrictions in January. The stock appears to be fairly valued at this juncture, in our view; hence, we maintain MP but with lower TP of RM22.35 following an earnings adjustment.

Above expectations. FY20 Core Net Profit (CNP) of RM175.4m (after accounting for one-off custom bill of demand of RM7.2m and one-off restructuring cost of RM14.0m) came in exceeding our and consensus’ forecasts at 123% and 110%, respectively. The positive deviation is likely due to better-than-expected beer volumes in 4Q. As a result of the better earnings, the declared dividend of 51.0 sen came in above our expectation as well, translating to a dividend pay-out ratio of 100%.

Overall weaker set of results. YoY, FY20 revenue slipped 24%, attributable to: (i) decline in beer volume led by the suspension of brewery operations during MCO, as well as (ii) disrupted on-trade channels as restaurants and coffee shops’ businesses remained subdued amidst the pandemic while pubs and entertainment outlets that are without restaurant licences are still prohibited from operating. Despite the group’s effort to streamline its cost base for FY20 (i.e. more prudent commercial and operation spends), the decline in the top-line outpaced that of fixed costs, leading to a steeper dive in earnings of 44%.

QoQ, 4QFY20 revenue and CNP rose 10% and 11%, respectively, likely attributable to the continued recovery in beer volumes and the boost from the year-end festivities.

Near-term volatility remains. Moving forward, the on-trade beer volumes are likely to remain challenged amidst the re-imposition of movement restrictions and the alarmingly high Covid-19 local cases of late. Despite near-term weaknesses, we believe the prospect of earnings recovery is looking much brighter given recent vaccine developments, which could eventually result in full re-opening of on-trade channels and the uplift of travel restrictions upon successful local and global vaccination. Notably, the group has taken various initiatives during the pandemic such as: (i) the implementation of aggressive cost- saving measures (i.e. commercial, marketing and overhead spends) that would remain in place even after the pandemic, as well as, (ii) adapting to change in consumer behaviour by accelerating the growth of its in-house e-commerce platform (Drinkies) and through placing more importance on digital commercial executions to engage with the consumers virtually.

Post results, we trimmed our FY21E earnings by 5% to account for a softer recovery assumption given the re-imposition of MCO in January, while introducing new FY22E numbers. As the group remain committed to their 100% dividend policy even during a pandemic-disrupted FY20, we adjust our forward dividend forecasts to 90.0 sen in FY21 and 102.0 sen in FY22, implying 100% pay-out ratio.

Maintain MARKET PERFORM with lower TP of RM22.35 (from RM23.55), based on an unchanged FY21E 25.0x PER which is closely in-line with its 3-year mean which reflects assured forward earnings recovery in FY21. Risks to our call include: (i) weaker/stronger-than- expected sales volume, and (ii) higher/lower-than-expected operating expenses.

Source: Kenanga Research - 19 Feb 2021