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Since our initial coverage of Carlsberg back on 11 December 2020, Carlsberg’s share price has increased slightly, closing at RM23.38 last Friday.

In this article, we digest and provide an update on Carlsberg’s latest quarter result.

UPDATE ON LATEST QUARTER (OCT – DEC) RESULTS

The Group’s revenue increased by RM37.2m / 8.5% as sales recovered in both Malaysia and Singapore following the easing of the counter measure to contain the outbreak of Covid-19.

However, profit from operations decreased mainly due to one-off organisation restructuring costs and higher marketing expenses to drive sales and consumptions.

Excluding the RM9.9m one-off restructuring cost, net profit would have improved to RM47.8m, an increase of RM7.2m / 17.7%.


UPDATE ON FULL YEAR 2020 (JAN – DEC) RESULTS

*Excluded one-off restructuring expenses of RM9.9m and one-off settlement with the Royal Malaysian Customs of RM6.4m.

The decline in revenue and profit were the upshot of a 7-week brewery suspension in Malaysia and several limitations imposed to on-trade businesses during the implementation of movement controls in Malaysia and circuit breaker in Singapore.

Despite the 20.9% fall in revenue, we favor the Group for being able to sustain a healthy net margin of 10.5%. For the past 5 years, its net margin ranged between 12.1% – 14.0%.

Furthermore, the Group continues to generate strong cashflow from operations and free cashflow of RM212m and RM174m respectively. This is equivalent to a strong CFO and FFO to Net Income ratio of 1.12x and 0.92x respectively.


CORPORATE OUTLOOK

The Group is taking a cautious view over the outlook for 2021 due to the persevering effects of COVID-19 and the possible government regulations and measures that will likely cause on-trade sales and consumer sentiment to remain depressed.

In light of the reimposition of the second MCO in Malaysia since January, the Group anticipates a muted recovery in on-trade sales, as well as other factors such as weak macroeconomic conditions.

Limitations set on Chinese New Year reunions, dining-out and travels had also impacted the business.

On the bright side, the Management is hopeful that the national Covid-19 vaccination plans in Malaysia and Singapore will curtail the infections and lead to better economic recovery in the second half of 2021.


VALUATION UPDATES

With reference to Carlsberg’s latest quarter results, we would remain our earlier projection on Carlsberg’s fair value and investment decision.

Assumptions:
1. Carlsberg’s revenue expected to return to the 2019 peak of RM2.2b in 2 years’ time i.e. 2022. Thereafter, the growth rate normalises at 5% p.a.
2. Carlsberg’s net margin to improve steadily over the next 3 years, peaking at 13.0% in 2022 onwards (equivalent to the 5 years average).
3. PE assumed at the mean of 25x.
4. Dividend payout ratio expected to improve steadily over the next 2 years.

At RM23.38, Carlsberg remains fairly attractive with 3 years CAGR return of 6.2%. We are hopeful that the worst is over in Malaysia and Singapore, as the national vaccination plan starts and expected to gain pace by mid-2021.

Allowing for dine-ins and extension of operating hours would more or less help with the recovery of Carlsberg’s on-trade sales.

Do visit our official site for more details and other stock coverages!

https://klse.i3investor.com/blogs/The1994Investor/2021-02-21-story-h1541198841-Carlsberg_On_track_for_recovery.jsp

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