1QFY21 CNP of RM66m came within expectations, thanks to its sturdier Singapore operation. After rolling over valuation base to FY22E, we revised down our TP to RM24.10 applying a lower PER of 25.0x (implying 0.5SD below mean) to reflect the resurgence of near term head-winds. Reiterate OUTPERFORM given the track record of inelastic beer demand and expected earnings recovery on full-blown vaccination roll-out in 2H 2021.

In line. 1QFY21 core net profit (CNP) of RM66m (-9% YoY) came in line, accounting for 25%/26% of our/consensus estimates. As with the previous financial year, no dividend was declared reflecting the uncertainty of the resurgence pandemic.

YoY, the prevailing lockdown continued to dampen its performance as revenue fell 10% to RM532m. While Malaysian operation saw a 20% decline in revenue, Singapore operation’s revenue rebounded +21% to RM175m on account of Chinese New Year celebrations boosted by the ease of restrictions from 28 December 2020. Malaysian operation was however affected by new restrictions from 13 Jan 2021 which hampered festive sales. On a positive note, cost discipline helped to maintain an EBIT margin of 16% as in the previous corresponding quarter. Cost discipline improved domestic operating margin (80bps to 17%) whilst Singapore margin fell slightly to 12% (-40bps).

QoQ, 1QFY21 CNP surged +75% to RM66m on account of easing restrictions in both Malaysia and Singapore further boosted by the absence of the one-off restructuring costs (RM10m) and lower marketing expenses. In terms of revenue, Malaysia saw a better performance, at RM356m (+13%), outpacing Singapore by 2ppt. Overall EBIT improved 6ppt to 16% given the cost discipline but Singapore operation saw its operating margin falling 3pts due to higher marketing expenses to boost CNY sales.

Despite the resurging pandemic, we maintain our view of earnings recovery which will depend on the efficacy of on-going vaccinations with full-blown roll-out expected in 2H 2021. That said, 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 better control of its Covid-19 situation. We also take heart of its cost-discipline enabling robust margins in the near-term.

Post-results, there are no revision in earnings, as results were in line. While earnings will be challenging in the 2Q, we are positive of better performance in the subsequent quarters premised on an earnings recovery with the vaccine roll-out coupled with its pe-Covid track record of inelastic beer demand.

Maintain OUTPERFORM but with a lower TP of RM24.10 (from RM25.65) based on a lower FY21E PER of 25.0x (29.0x previously) implying 0.5SD below its 3-year mean to reflect on the near-term weakness from the resurging pandemic coupled with prevailing and restrictive lockdowns.

Risks to our call include: (i) lower-than-expected sales volume, and (ii) hike in excise duty.

Source: Kenanga Research - 19 May 2021