CARLSBERG Brewery Malaysia Bhd is very much a potential ‘recovery play’ candidate premised on the recent COVID-19 vaccine developments which could see a comeback of inelastic beer demand and generous dividend pay-out in FY2021.
In this regard, Kenanga Research expects near-term weakness in Carlsberg’s Malaysian operation – plagued by potentially by softer beer demand amid the resurgence of local COVID-19 cases – to be partially mitigated by a sturdier Singapore operation due the latter’s easing and controlled COVID-19 situation.
“That said, the prospect of earnings recovery is looking much brighter, given the recent vaccine developments which could eventually result in full re-opening of on-trade channels and the uplift of travel restrictions upon successful local deployment,” wrote analyst Nikki Thang in a results review.
On a year-on-year (yoy) basis, Carlsberg’s 9M FY2020 revenue dipped 22% to RM1.31 bil, predominantly dragged by weaker revenue from both its Malaysia operation (-24%) and Singapore operation (-18%).
Nevertheless, on a sequential basis, the brewer’s 3Q FY2020 revenue rose 52%, buoyed by robust post-lockdown sales recovery from both its Malaysia operation (+39%) and Singapore operation (+85%).
Coupled with higher profit from its associate Lion Brewery (RM5.8 mil versus RM500,000 in 2Q FY2020), Carlsberg’s core net profit more than doubled to RM40.6 mil, according to Kenanga Research.
All-in, the research house maintained its “outperform” rating on Carlsberg with a higher target price of RM26.50 (from RM24.25 previously) despite near-term earnings and dividend uncertainties.
“Given its pre-COVID-19 track record of inelastic beer demand and generous dividend pay-out, the stock could be viewed as a strong candidate for ‘recovery plays’,” reckoned the research house.
“Risks to our call include: (i) lower-than-expected sales volume, and (ii) hike in excise duty.”
Meanwhile, TA Security Research downgraded Carlsberg to “hold” from “buy” previously on account the recent jump in its share price (target price is also revised downwards to RM24.10 from RM24.50 previously).
“The near-term outlook remains challenging as the extension of conditioned movement control order may take a toll on recovery of group’s on-trade sales,” analyst Jeff Lye Zhen Xiong pointed out.
“That said, we reckon demand recovery in 2021 could be swifter should the COVID-19 pandemic subsides.”
Nevertheless, the research house also deemed the absence of excise duties hike in the recently tabled Budget 2021 as a relief to the brewery industry given an increase may incentivise illicit trade while making legitimate beer less affordable for consumers.
At 9.16am, Carlsberg was down 42 sen or 1.81% to RM22.82 with 14,600 shares traded, thus valuing the company at RM6.98 bil.
