• Maintain NEUTRAL, with new MYR25 TP from MYR25.70, 7% upside. Carlsberg Brewery’s FY22 results met our, but trailed consensus’ expectations. We expect FY23F volume growth to be flattish, considering the high FY22 base, risk of slower global economic growth, and elevated inflationary pressures. That said, the price hikes and absence of Cukai Makmur should propel FY23F earnings growth of 5%. Notwithstanding, we believe its current valuation is fair, reflecting the recovery prospects, and we do not currently see any compelling reason to stretch our valuation.

• FY22 results were in line with our, but missed consensus’ expectations. Core net profit of MYR350m accounted for 100% and 96% of our and Street estimates. Post results, our FY23F-24F earnings are little changed after updating the full-year numbers, and we roll out FY25F earnings (+7% YoY). Correspondingly, our DDM-derived TP is also tweaked to MYR25 (inclusive of 4% ESG premium), which implies 22x FY23F P/E, in line with the valuation ascribed to peer Heineken Malaysia (HEIM MK, BUY, TP: MYR30.50).

• Results review. YoY, FY22 revenue jumped 36% thanks to consumption recovery, particularly in the on-trade channels whilst FY21 was at a low base, affected by plant shutdowns. Despite the elevated raw material costs and higher opex on the back of more marketing activities, FY22 operating profit surged 72% to MYR425m with margin expanding 3.7ppts to 17.6% thanks to operational efficiency and ASP adjustments. QoQ, 4Q22 revenue climbed 7% to MYR613m, driven by year-end seasonality and festivities. However, higher marketing spending in relation to the early Lunar New Year timing and higher effective tax rate (ETR) (+2.4ppts) dragged 4Q22 core net profit down by 9% to MYR70m. FY22 DPS of 88 sen, which represents a payout ratio of 85%, is below our forecast.

• Outlook. Management is expecting a more challenging year ahead, in view of the uncertain global economic outlook and elevated inflationary pressures, both of which will have an adverse impact on consumer spending and sentiment. Meanwhile, raw material costs have moderated slightly from the peak, albeit still higher than pre-pandemic levels. However, the price hikes implemented in FY22 should be sufficient to cushion the impact. In order to remain competitive and sustain its earnings growth, Carlsberg will continue to launch engaging marketing campaigns to stimulate spending whilst keeping a tight control on costs to maintain operational efficiency.

• Risks to our recommendation include unfavourable regulatory changes and a major loss in market share.

Source: RHB Research - 24 Feb 2023