• U/G to BUY from Neutral, TP remains at MYR22.70, 15% upside. 9M23results met expectations, with lower tax expenses partially offsetting theeffect of the normalisation in consumption. The stock is trading at -1.5SDfrom the P/E mean, which presents opportunities to accumulate – withconcerns on excise duty hikes not materialising, while regulatory risksshould dissipate on political stability. We like the brewery sector due to thesteady demand for its products, premiumisation strategies (cushioning theimpact of rising costs), and generous dividend payouts (c.6% FY24F yield).

• Carlsberg Brewery’s (Carlsberg) 9M23 results are in line. Core net profitof MYR247m (-5% YoY) accounted for 75% and 73% of our and consensusfull-year forecasts. Post results, we make no changes to our earningsestimates and DDM-derived TP of MYR22.70 (inclusive of a 6% ESGpremium). Our TP also implies 20x FY24F P/E, which is at a slight discountto its peer, Heineken Malaysia (HEIM MK, BUY, TP: MYR31.80) to accountfor the latter’s market leadership in the country.

• Results review. YoY, 9M23 revenue dropped by 7% to MYR1.7bn, withboth Malaysia (-8%) and Singapore (-4%) dragged down by softerconsumer sentiment whilst 9M22 was also a high base, being boosted bythe economic reopening. 9M23 operating profit fell by 10% YoY toMYR308m (margin: -0.6ppt) likely due to higher marketing expensesincurred to spur consumer spending and support brand-building initiatives.That said, the impact was partially mitigated by the normalisation of effectivetax rates (ETR) upon the expiry of Cukai Makmur. QoQ, 3Q23 revenue wasflattish at MYR513m but core net profit was 12% lower at MYR76m.Carlsberg attributed this to higher costs arising from the impact of inflation,but we believe the swing in marketing expenses loading may have alsoplayed a part. A third interim DPS of 19 sen was declared, bringing the YTDpayout to 62 sen (9M22: 63 sen)

• Outlook. 4Q23F should see a QoQ uptick on better seasonality, whereasthe YoY comparison should also be favourable, with 4Q22 earningsdeflated by a high ETR (30% vs FY22’s 27%). All in all, we expect a softlanding in FY23 after an exceptional FY22, with ASP adjustments and thenormalisation of ETR offsetting the impact of lower consumption. Beyondthe near term, we expect robust topline growth, underpinned by Carlsberg’spremiumisation strategy. Meanwhile the overall consumption environmentand consumer sentiment could improve – considering the moderatinginflation level, pick-up in tourist arrivals, and stable legal total industryvolume thanks to the effective clampdown on contraband items (see page4 for our comments on the non-renewal of distributor rights for Asahi).

• Downside risks to our recommendation include weaker-than-expectedconsumer sentiment and a major loss in market share.

Source: RHB Securities Research - 2 Nov 2023