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CARLSBG (2836): CARLSBERG BREWERY MALAYSIA BHD – Is now the best time to invest?

Carlsberg is an established brewery that manufactures and distributes beers, stouts and other malt-based beverages.

In this article, we discuss the prospects of investing in Carlsberg, as the Malaysian economy perseveres through the Covid-19 pandemic.

Sourced from https://carlsbergmalaysia.com.my/

The sales and distribution of brands are carried out by its subsidiaries Carlsberg Marketing Sdn Bhd in Malaysia, as well as others, detailed below:

Carlsberg Structure

Besides manufacturing and distributing its own brands, Carlsberg also imports and distributes 3rd party brands i.e. Corona Extra, Brooklyn East IPA & Brooklyn Lager

Beginning 2017, Carlsberg Malaysia & Singapore embarked on a new corporate strategy – SAIL ’22, which emphasizes the below:

  1. Growing its mainstream, flagship brands i.e. Carlsberg and Carlsberg Smooth Draught;
  2. Improve distribution and presentation of brands across stores;
  3. Deliver efficiencies in areas of Supply chain, operating expenses and value management;
  4. Go Big in premium – to improve distribution and sales of premium brands i.e. Kronenbourg 1664 Blanc, Somersby Cider, Asahi Super Dry and Connor’s Stout Porter; and
  5. Building new revenue streams via introducing Brooklyn Brewery Craft Beers and expansion into e-commerce.

The variety of beers that Carlsberg produces and / or distributes are listed below:

Note: ABV = Alcohol by Volume


For the past 5 financial years, Carlsberg’s revenue grew at a cumulative average growth rate (“CAGR”) of 8.0% p.a. In fact, growth accelerated during the past 2 years in FYE 2018 and FYE 2019, recording an annual growth of 12.1% and 13.8% respectively.

Over the years, Carlsberg’s net margins remained consistent within the range of 12.1% to 13.7%. This is despite facing declining gross margins from 36.6% in FYE 2015 to 31.7% in FYE 2019.

Notwithstanding the above, the Group’s profitability improved slightly since FYE 2016, before the Covid-19 pandemic struck, as they pursued growth in the premium brands segment.

Note: FCF = CFO less net cash flow from operating activities

In terms of cashflow, Carlsberg showed superb capability to generate consistently strong cash flow from operations (“CFO”), with an average CFO to Net Income of >1.2x over the past 5 years.

The free cash flow (“FCF”) to net income ratio was equally impressive, remaining above 1.0x for most of the years. This is mainly due to its business model, which requires minimal capital reinvestment for upgrading of machineries or research and developments in order to produce new products.

Starting 2017, Carlsberg announced a targeted 100% payout of the Group’s consolidated net profit, and would adopt a quarterly interim dividend payout moving forward.

Balance sheet wise, Carlsberg is net-cash throughout the years with a negative operating cash cycle.


Carlsberg’s 3Q 2020 revenue and net profit closed at RM1,312m and RM130m respectively, achieving 58% and 45% of FYE2019 full year results. This was due to the severe drop in demand following the pandemic outbreak in March, which led to months of restricted movements across the nation.

The drastic fall in tourist arrivals also contributed to the drop in demand for alcoholic beverage. Malaysia only welcomed approximately four million tourists between January and September this year, marking a decrease of 78.6% compared to 20.1 million tourists in 2019.

For the first 9 months of FYE 2020, net margins dropped from an average of 13.0% to 9.9%, as production fails to meet its economies of scale.

Throughout the outbreak, Carlsberg’s share price was also hammered from its all-time high of RM39.0 in February 2020 to a low of RM17.8 in March, before rebounding over the months and closing recently at approximately RM22.0. Despite the rebound, Carlsberg’s share price remained below its high of RM39.0 by RM17 / 43%.

On a positive note, Carlsberg’s 3Q performance rebounded strongly from 2Q, after the MCO was lifted. Refer to table below for details.

With reference to the above, we can conservatively assume that the worst is over for Carlsberg, and expect their results moving forward to achieve a minimum of approximately RM430m in revenue per quarter.


For the next 2 years, as long as Carlsberg returns its revenue to the 2019 level of RM2.2b, that would already be an impressive 30% improvement in 2 years / ~15% p.a.

As for the third year (2023) onwards, we can anticipate Carlsberg’s growth rate to normalize at around 8% p.a. Further upside to be expected would be for Carlsberg’s profitability margins to improve moving forward as they continue to emphasize on building its premium brands portfolio.


  1. Worsening outbreak forcing lockdowns to be extended across the nation
  2. Slower than expected recovery on local and foreign tourism
  3. Change with consumers’ preferences for healthier beverages, which we think is very unlikely
  4. Increase in excise duty for alcohol


Carlsberg’s parent company, Carlsberg Brewery A/S, based in Denmark, holds a controlling stake of 51% of the total float.

Institutional holdings in Carlsberg comprise more than 11.5% local and foreign funds i.e AIA Bhd, Great Eastern Life Insurance, Vanguard, JP Morgan, SPDR ETF, UBS AG, GIC for the Government of Singapore and Blackrock etc.


Over the past 5 years, Carlsberg have been trading within the PE range of 16x – 32x, while Heineken Malaysia Berhad trades within the PE range of 17x – 25x.

Benchmarking against international peers, Carlsberg A/S trades at roughly 23X PE, Heineken NV at 25x PE and Thai Bev at 20.0x PE.

Taking the above into consideration, along with Carlsberg’s high dividend payout policy (dividend yield ranges between 3% to 6%) over the years, we would value Carlsberg’s fair value to be priced within the PE range of 23x – 28x.

On a short term – 1 year horizon / projection, Carlsberg’s current price at RM22.00 seems fairly valued. However, if we were to consider it on a mid-term – 3 years horizon, Carlsberg would be equivalent to an equity bond* that provides a minimum annual return of 4.24%, to a highest possible return of 10.68% p.a., within the next 3 years. Refer to details as below:

Assumptions made:
1. Carlsberg’s revenue returns to the 2019 peak of RM2.2b in 2 years i.e. 2022. Thereafter, growth rate to normalize at 5% p.a.
2. Carlsberg’s net margin to improve steadily for the next 3 years, and peak at 13.0% in 2022 onwards (equivalent to the 5 years average).
3. Number of shares assumed to remain constant.
4. PE assumption at 23x, 25x and 28x for worst, base and best-case scenario respectively.
5. Dividend payout ratio returns to 50% in 2021 and 100% by 2022 onwards.

On a base case of 25x PE, Carlsberg would be yielding a consistent annual return of 6.91% p.a. for the next 3 years. I would consider this more for a substitute to fixed deposits / bonds investments you currently own. Better control of the outbreak or an earlier distribution of vaccines would be a major catalyst for Carlsberg mid-term growth.


‘Equity Bond Theory assumes the stock of a company with a durable competitive advantage is equivalent to bonds.

The equity bond is an investment that provides the security of a bond and generates a reliable income stream known as a coupon (think interest off a term deposit).

At the same time this equity bond provided growth (think growing business with share price rising over the long term or property price rising over the long term).’ – Warren Buffett’s embodiment of value and growth investing


We have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. This article is written ourselves, and it expresses our own opinions. We have no business relationship with any company whose stock is mentioned in this article, and do not receive any compensation.

Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including a detailed review of the companies’ Bursa filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication and are subject to change without notice.


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