KUALA LUMPUR (May 19): Analysts have trimmed their target prices (TPs) for Carlsberg Brewery Malaysia Bhd on expectations that near-term demand for beer could be affected by lockdowns and other restrictions aimed at getting a resurgence in Covid-19 cases under control.
In a note today, Hong Leong Investment Bank (HLIB) Research analyst Gan Huan Wen cut the counter's TP to RM22 from RM22.50 earlier after rolling over its valuations and lowering its forecasts for 2021 and 2022 by 8% and 7.4% respectively due to lower sales volume.
"While we expect sales in 2Q21 (the second quarter of 2021) to continue to be sluggish from movement restrictions in Malaysia and Singapore, we reckon Carlsberg is fairly valued at current price levels, with FY21/22 (financial years ending Dec 31, 2021 and 2022 respectively) forecast yields of 3.6%/4.1%, which are decent in the current low interest rate environment," he wrote.
He noted that Carlsberg's earnings rely heavily on Malaysia and Singapore keeping a tight lid on Covid-19 cases and quickly vaccinating their populations, which would eventually lead to the reopening of on-trade sales channels.
"While we expect its FY21 earnings to be stronger year-on-year (y-o-y) due to somewhat lighter Covid-19 restrictions than in FY20, the recent reimplementation of movement restrictions in both Malaysia and Singapore is expected to result in sluggish on-trade sales in 2Q21," he said.
Gan maintained his "hold" rating of the stock.
Meanwhile, Kenanga Research's Ahmad Ramzani Ramli lowered his TP for Carlsberg to RM24.10 from RM25.65 based on a lower price-earnings ratio (PER) of 25 times for FY21, compared with 29 times previously, to reflect near-term weakness from the resurging pandemic, as well as prevailing and restrictive lockdowns.
"Despite the resurging pandemic, we maintain our view of an earnings recovery, which will depend on the efficacy of ongoing vaccination, with a full-blown roll-out expected in 2H21 (the second half of 2021). That said, we expect near-term weakness in its Malaysian operations, plagued by potentially softer beer demand amid the resurgence in local Covid-19 cases, to be partially alleviated by sturdier Singapore operations due to the latter’s better control of its Covid-19 situation.
"We also take heart of its cost-discipline enabling robust margins in the near term. Post results, there are no revisions of [our] earnings [forecasts] as results were in line. While earnings will be challenging in 2Q, we are positive about a better performance in the subsequent quarters premised on an earnings recovery with the vaccine roll-out, coupled with its pe-Covid-19 track record of inelastic beer demand," he said.
He maintained his "outperform" rating of the counter.
Yesterday, Carlsberg reported that its net profit for the first quarter ended March 31, 2021 (1QFY21) fell 8.91% to RM66.46 million, from RM72.96 million a year earlier, as it recorded lower sales in Malaysia, though this was partially mitigated by higher sales in Singapore and lower operational cost.
Quarterly revenue fell 9.81% to RM532 million from RM589.87 million following the reimposition of the movement control order (MCO) from Jan 13 to Feb 18 in several states, which impacted on-trade consumption and caused weaker Chinese New Year sales.
On a quarter-on-quarter (q-o-q) basis, however, the group's net profit rose 75.1% from RM37.95 million for the preceding quarter as revenue rose 12.6% from RM472.54 million, supported by a sales recovery in both Malaysia and Singapore.
Both Gan and Ahmad Ramzani deemed the results to be below expectations.
At 9.27am today, Carlsberg was the eighth top loser on the local bourse, dropping 10 sen or 0.45% to RM21.90, giving it a market capitalisation of RM6.73 billion.