Malaysia: Analysts cut earnings forecast for Carlsberg Brewery Malaysia for FY20, FY21, and FY22
Analysts have cut their earnings forecasts for Carlsberg Brewery Malaysia Bhd for the financial year ending Dec 31, 2020 (FY20), FY21, and FY22 on slower sales volume, The Edge Markets reported on August 17.
In a research note, Hong Leong Investment Bank Research analyst Gan Huan Wen trimmed its earnings forecast for the brewery for the three years by 17.3%, 14% and 7.8%.
Carlsberg reported core profit after tax and minority interests (PATAMI) of RM11.9 million in the second quarter ended June 30, 2020 (2Q20), which brought PATAMI in the first half of 2020 (1H20) to RM84.9 million.
“This is below expectations, making up 33% and 36.1% of our and consensus forecasts, respectively. The shortfall in earnings was due to weaker-than-expected sales volumes as a result of MCO [Movement Control Order] restrictions. Core PATAMI was arrived at after adding back RM1.3 million in foreign exchange losses,” said Gan.
Gan noted that while the research house expects sales to rebound in the third quarter ending Sept 30, 2020 as restrictions ease in Malaysia and Singapore, sales volume will continue to be sluggish.
“We note that many bars and clubs are still prohibited from opening, while others continue to operate with shorter operating hours,” said the analyst.
Gan maintained a ‘sell’ rating on the group with a lower target price of RM19.70 from RM21 previously based on unchanged DCF-derived valuation, with a WACC of 8.5% and TG of 2.5%.
Meanwhile, TA Securities Research analyst Jeff Lye Zhen Xiong also cut its earnings forecast for Carlsberg for FY20, FY21 and FY22 by 15%, 9% and 3% respectively.
“We reduce FY20-22 sales volume by 3-10%, considering loss of production during MCO period and weaker on-trade channel capacity,” he said.
However, he foresees a gradual recovery in overall economy and beer consumption in the second half of FY20, followed by a strong demand uptick in 2021 when the Covid-19 pandemic subsides along with resumptions of world major sports events such as the 2021 Tokyo Olympics and Euro Cup.
Besides, he said the group also rolled out several initiatives under its Safer Together campaign, specifically Adopt a Keg and Bring Me Home campaigns, to facilitate business recovery at the on-trade channels, RM3.5 million aid to support Malaysian coffee shops alongside donations of thermometers and disinfection services to support schools.
“To weather through the current challenging environment, the group would focus on optimising cost base, re-prioritising investment on digital campaigns/e-commerce and off-trade channel, alongside providing support to key business partners and stakeholders,” he said in a note.
With the recent dip in share price, the analyst upgrades Carlsberg to ‘hold’ from ‘sell’ with a lower target price of RM24.50 from RM26 earlier based on unchanged DCF valuation (discount rate: 7%, g: 3%).
20 August, 2020
