• Maintain NEUTRAL and TP of MYR23.80, 8% upside and c.4% FY22F yield. Carlsberg’s 1Q22 results beat expectations on stronger-than- expected consumption recovery. The positive momentum should sustain going forward in view of the reopening of international borders and entertainment outlets resuming operations. Current valuation is deemed fair vs peer, and may have priced in most of the recovery prospects, in our view. We refrain from being overly aggressive with our valuation considering the regulatory risks.

• Carlsberg’s 1Q22 results were above expectations. Net profit of MYR92m (+38% YoY) accounted for 35% of our and consensus forecasts on stronger-than-expected consumption recovery. Post-results, we raise our FY22F earnings by 7% but keep FY23F-24F materially unchanged. Our DDM-derived TP remains at MYR23.80 (inclusive of a 4% ESG premium), which implies 25x P/E FY22F (ex Cukai Makmur impact), or close to the stock’s 5-year mean, and in line with the valuation we ascribed to peer Heineken (HEIM MK, BUY, TP: MYR28.50).

• Results review. YoY, 1Q22 sales jumped 23% to MYR654m, thanks to robust growth in both Malaysia (+27%) and Singapore (+14%) markets on the back of a normalised Lunar New Year festival, better ASP, and product mix following the broader relaxation of COVID-19-related restrictions in both countries. As a result, 1Q22 operating profit surged 37% to MYR114m despite the higher marketing investments to spur consumer spending. QoQ, 1Q22 sales was 21% higher driven by Lunar New Year festival and further reopening of the local economies. Correspondingly, 1Q22 net profit rose 28% QoQ notwithstanding the higher marketing spend and Cukai Makmur impact. First DPS of 22 sen was declared (vs 1Q21: nil).

• Broader reopening to further support consumption recovery. Seemingly, the ASP hike has not deterred volume significantly considering the inelastic demand for beer whilst the ongoing economic recovery and pent up demand should have also helped. Looking ahead, we expect the encouraging momentum to be sustainable taking into account the reopening of international borders to facilitate foreign tourist arrivals whilst entertainment outlets resuming operations from 15 May should further aid volume recovery. That said, the elevated margin in 1Q22 could taper off going forward as the group may restart some of its brand-building marketing campaigns in order to spur consumer spending and strengthen its market share.

• Risks to our recommendation include unfavourable regulatory changes and major loss in market share.

Source: RHB Research - 25 May 2022