• Maintain BUY and MYR22.20 TP, 19% upside and c.6% FY25F yield. Carlsberg Brewery’s 1H24 results were within expectations on solid topline growth momentum. Demand stickiness, rising tourist arrivals, and price increases should sustain the earnings momentum going forward, on top of the strengthening MYR and continuous clampdown on illicit trades. With that, the current valuation looks undemanding, at -1.5SD from its 5-year mean considering the solid earnings delivery notwithstanding the subdued consumer sentiment, diminished regulatory risks with the political stability, and generous dividend payout.

• 1H24 results were within expectations. Core net profit of MYR178m (+4% YoY) accounted for 52% and 53% of our and consensus forecasts. Post- results, we make no changes to our earnings forecasts and DDM-derived TP of MYR22.20 (inclusive of a 6% ESG premium) which implies 19x FY25F P/E. This represents a discount to peer Heineken Malaysia (HEIM MK, BUY, TP: MYR29.60), justified by the latter’s market leadership in Malaysia and more generous dividend payout.

• Results review. YoY, 1H24 revenue grew 6% to MYR1.2bn, mainly driven by the robust sales in Malaysia (+8%) on the back of the longer Lunar New Year selling period. This more than offset the transitional impact arising from the discontinuation of the Asahi brand, which was subsequently replaced by another premium Japanese brand – Sapporo. With the Sri Lankan associate contributing a higher share of profit of MYR16m (+60%), 1H24 core net profit rose 4% to MYR178m on a relatively stable net margin of 14.4%. QoQ, 2Q24 revenue and core net profit dipped 30% and 20% due to the favourable seasonality and pre-price increase frontloading in 1Q24.

• Outlook. Carlsberg shared that volume has yet to normalise to pre-pandemic levels, dragged down by the soft consumer sentiment and inflationary pressures. As such, the key growth driver has been the premiumisation of product mix, which should continue in view of the strategy to focus on premium brands, further supported by the recent price increases in April. Meanwhile, the trend of easing input costs will have little bearing on FY24F margin given the hedging in place. Similarly, the stronger MYR could only result in minor cost savings considering the low percentage of input cost/revenue and Singapore exposure. That said, management did observe a pick-up in consumer sentiment following the strong rebound in MYR. More new product launches are in the pipeline to excite the market after the rollout of Sapporo, 1664 Brut, and Somersby Pineapple & Lime in 1H24.

• Risks to our recommendation include unfavourable regulatory changes and major loss of market shares.

Source: RHB Research - 20 Aug 2024