KUALA LUMPUR (Nov 13): Kenanga Research has viewed Carlsberg Brewery Malaysia Bhd as a strong candidate for recovery play given its pre-Covid-19 track record of inelastic beer demand and generous dividend payout.
The research house has maintained an ‘outperform’ call on the group with a higher target price of RM26.50, from RM24.25 previously.
Commenting on the group’s recent financial results ended Sept 30, 2020, its analyst Nikki Thang said the nine months (9MFY20) core net profit of RM129.1 million missed expectations, at 61% and 65% of the research house's and consensus forecasts respectively.
“The mismatch is likely due to worse-than-expected margins from the lower economies of scale. Nonetheless, the absence of dividend is within expectation, given the earlier announcement of the suspension of quarterly dividend payments in light of the current pandemic,” Thang said in a note today.
Moving ahead, Thang expects the near-term weakness in Malaysia operations, plagued by potentially softer beer demand amid the resurgence of local Covid-19 cases, to be partially mitigated by sturdier Singapore operations, due to 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,” said Thang.
“Despite near-term earnings and dividend uncertainties, and in view of recent news on successful vaccine developments, we raised our ascribed FY21E PER to 29.0x (from 26.0x), which is closely in-line with its three-year mean and to reflect more assured recovery and forward earnings momentum,” she added.
Meanwhile, CGS-CIMB Research expects Carlsberg to record stronger quarter-on-quarter results for the fourth quarter ended Dec 31, 2020 (4QFY20).
Its analyst Walter Aw expects the group to benefit from continuous sales recovery in Singapore as well as seasonality factors — historically higher 4Q sales due to trade loading prior to Chinese New Year (CNY) celebration.
However, CGS-CIMB has lowered its target prices on Carlsberg to RM23 from RM23.20.
“We reiterate our Hold call on Carlsberg as we expect its valuations to be supported by the defensive nature of its business (inelastic beer demand), its captive market in Malaysia and Singapore, and its 39% discount to Malaysia’s consumer sector current CY21F weighted average P/E of 45.2x,” said Aw.
Carlsberg is currently trading at 22 sen or 0.95% to RM23.46, valuing the group at RM7.17 billion.