Prospect of earnings recovery much brighter for Carlsberg
KUALA LUMPUR: Carlsberg Brewery Malaysia Bhd’s (Carlsberg) prospects are expected to improve given the recent Covid-19 vaccine developments.
In the financial year 2020 (FY20), Carlsberg’s revenue slipped 21 per cent, mainly dampened by weaker revenue from both its Malaysia operation (down 23 per cent) and Singapore operation (down 15 per cent) due to lower beer volumes.
This decline was attributable to the suspension of its brewery during MCO, coupled with dine-in disruptions and social-distancing SOPs under the movement restrictions for both Malaysia and Singapore.
Consequently, its core net profit (CNP) plunged 40 per cent, as poorer economies of scale dampened earnings before interest and tax (EBIT) margin (down 5.4ppt).
“Moving ahead, we expect the near-term weakness in Malaysia operation – plagued by potentially softer beer demand amid the resurgence of local Covid-19 cases to be partially alleviated 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 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,” the research team at Kenanga Investment Bank Bhd (Kenanga Research) opined.
“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 play’,” it added.
Post-results, Kenanga Research cut its FY21 estimated earnings by 3.1 per cent to account for a softer recovery in Malaysia amid the reimposition of MCO in January, while introducing new FY22E earnings.