Review

• Carlsberg Brewery Malaysia Berhad’s (CARLSBG) 9MFY23 core net profit of RM249.2mn met market expectations, accounting for 77% and 73% of our and consensus’ full-year estimates, respectively.

• YoY, CARLSBG’s 9MFY23 revenue reduced by 6.6%, mainly attributable to high base effect and inflationary pressure. In tandem with lower revenue, its EBIT down by 9.7% to RM308.4mn. Notably, the effective tax rate has improved by 5ppt to 21.2%, credited to the absence of prosperity tax that was imposed on FY22 profits.

• QoQ, the group's 3QFY23 topline improved mildly by 1.3%, primarily driven by significant increase in sales from Singapore regions (+12.1% QoQ), which more than offset weaker sales in Malaysia regions (-2.6% QoQ). We believe the strengthening of SGD against MYR was also a factor to the higher revenue from Singapore in this quarter. However, the group's EBIT saw a substantial decline of 17.4% QoQ to RM90.2mn, mainly due to higher input costs and operating expenses.

• Geographically, both Malaysia and Singapore’s revenue declined by 7.8% and 3.5% YoY in 9MFY23, respectively, chiefly underpinned by lower sales volume due to lack of festive season and other major economic catalysts. On the flipside, the Malaysia and Singapore’s EBIT slid 10.1% and 4.6% YoY, respectively, which we attribute to higher input costs. Having said that, the group’s associate in Sri Lanka has contributed higher profit of RM19mn in 9MFY23, thanks to strengthening of the Sri Lanka Rupee and improving business environment.

• The board declared a third interim dividend of 19.0sen/share during the quarter under review (19.0sen/share in 3QFY22), bringing the YTD dividend to 62.0sen/share (9MFY22: 63.0sen/share).

Impact

• We tone down our FY24F earnings estimation by 7.1% to reflect the impact of discontinued of Asahi’s exclusive distribution in Malaysia.

Outlook

• Despite the company’s cautious view on the outlook, we expect the consumer spending power will remain strong due to tight labour market and accommodative interest rate environment in Malaysia. We look forward to stronger sales in 4QFY23 and 1QFY24 in conjunction with yearend festivals and Lunar Chinese New Year.

• However, the company disclosed that the cessation of Asahi’s exclusive distributorship is expected to result in RM30mn reduction in FY24 core earnings. This is despite the substitution of another exclusive distributorship to manufacture and distribute Sapporo Premium Beer (Sapporo) in Malaysia effective from 2024. Also, the group’s Singapore operations will be granted the joint-distribution rights to sell and distribute both Sapporo and Yebisu.

• We believe Sapporo shares the similar market audience with Asahi since both are Japanese-based breweries and mostly served with Japanese cuisine. Nonetheless, we are conservative on the substitution as it would take a year or two with continuous advertising and promotion in order to establish the new brand in regions. Hence, we anticipate the economies of scale is likely achieved in 1HFY25, which would fully offset the impact of discontinuation of Asahi distributorship.

Valuation

• We maintained Buy on Carlsberg with a lower target price of RM22.90/share (previously RM23.00/share) based on DCF valuation (k: 7.8%, g: 3.0%). At current price, the stock is a great defensive play with a decent dividend yield of 5-5.9% for FY24-25.

Source: TA Research - 2 Nov 2023