Price : RM22.50 Target Price : RM25.65 ↓

By Nikki Thang l nikkithang@kenanga.com.my

FY20 CNP (-40% YoY) came in within at 102% and 101% of our and consensus’ forecasts each, while the declared dividend of 40.0sen was above estimates. Despite near-term headwinds, we believe this could be an opportune time to position for a recovery play, as the stock is still trading at below-mean valuations. Reiterate OP but with lower TP of RM25.65, following an FY21 earnings adjustment to account for softer recovery amid the imposition of MCO 2.0. Within expectations. 12MFY20 core net profit (CNP) of RM177.0m (after stripping of post-tax bill of demand of RM4.9m and one-off restructuring cost of RM9.9m) came in within at 102% and 101% of our and consensus’ forecasts, respectively. Meanwhile, the declared dividend of 40.0 sen came in above our expectation, implying pay-out ratio of 70%.

A pandemic-disrupted year. YoY, FY20 revenue slipped 21%, mainly dampened by weaker revenue from both its Malaysia operation (-23%) and Singapore operation (-15%). The softer revenue is attributable to lower beer volumes attributable to: (i) seven weeks of suspension of its brewery during MCO, coupled with (ii) dine-in disruptions and social- distancing SOPs under the movement restrictions for both Malaysia and Singapore. Consequently, CNP plunged 40%, as poorer economies of scale dampened EBIT margin (-5.4ppt).

QoQ, 4QFY20 revenue and CNP rose 9% and 18%, respectively, mainly boosted by the continued demand recovery observed in both Malaysia (9%) and Singapore (7%).

Look beyond the near-term headwinds. Moving ahead, we expect the near-term weakness in Malaysia operation - plagued by potentially softer beer demand amid the resurgence of local Covid-19 cases to be partially alleviated by a sturdier Singapore operation, due the latter’s easing and controlled Covid-19 situation. That said, 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 deployment.

Post-results, we cut our FY21E earnings by 3.1% to account for a softer recovery in Malaysia amid the re-imposition of MCO in January, while introducing new FY22E earnings. Taking cue from the dividend pay-out in FY20, we adjusted our dividend pay-out assumption, at 74% for FY21 and 100% for FY22.

Maintain OUTPERFORM with lower TP of RM25.65 (from RM26.50) based on unchanged FY21E PER of 29.0x, which is closely in-line with its 3-year mean to reflect more assured forward earnings recovery in view of recent vaccine developments. Given its pre-Covid-19 track record of inelastic beer demand and generous dividend pay-out, the stock could be viewed as a strong candidate for “recovery play”. Risks to our call include: (i) lower-than-expected sales volume, and (ii) hike in excise duty.

Source: Kenanga Research - 19 Feb 2021