Carlsberg Brewery Malaysia: A Strong Finish to the Year of the Dragon

Carlsberg Brewery Malaysia (CAB MK), renowned for its diverse portfolio of beers including Carlsberg, Kronenbourg, Somersby, and Connor’s Stout Porter, continues to maintain its position as one of the top players in the brewery market. The company is on track to end the Dragon Year on a high, with a BUY recommendation maintained and a target price of RM25.10, implying a promising upside of 24.5% from its current share price of RM20.16.

Key Highlights

• The upcoming 4Q24 results are expected to show seasonal strength, boosted by early Chinese New Year celebrations in 2025, which have driven a surge in sales volume.
• Tourism recovery, particularly in light of the Visit Malaysia 2026 campaign, is anticipated to propel on-trade sales, offering significant growth opportunities for Carlsberg.
• A 5% price hike previously enacted by the company provides protection against potential cost increases, while marketing investments remain steady to expand market share.

Financial Overview

Carlsberg’s financials reflect its resilience, showcasing stable operations and strong performance:

• Net Turnover: RM2,366m forecasted for 2024, growing to RM2,531m by 2026.
• EBITDA: Expected to rise from RM476m in 2024 to RM548m in 2026.
• Net Profit: Estimated at RM341m for 2024, increasing to RM399m by 2026.
• EPS: Projected to grow from 111.0 sen in 2024 to 129.6 sen in 2026.
• Dividend Yield: Attractive yields of 4.9% in 2024, rising to 5.7% in 2026.
• Valuation: 2025F PE is estimated at 16.9x, below its five-year average, making it an attractive investment.

Operational Stability and Strategic Initiatives

Carlsberg’s operations are underpinned by stable raw material pricing and favorable USDMYR exchange rates. The Malaysia segment has demonstrated decent growth, supported by robust sales volume. The company’s marketing spend is expected to remain consistent as it continues to push initiatives to grow its market share.

In Singapore, the company’s efforts to establish the Sapporo brand have faced challenges, with increased marketing costs impacting margins. This segment is expected to recover gradually as Carlsberg builds brand equity in the region.

Tourism Recovery: A Growth Catalyst

Rising tourist arrivals in Malaysia, surpassing pre-pandemic levels by 11.5% as of November 2024, are expected to benefit Carlsberg significantly. The on-trade segment, which historically accounted for 60% of sales volume, is poised for growth as tourist spending increases. This recovery is a key driver for Carlsberg’s optimistic outlook.

Capex Commitments and Dividend Potential

With the completion of a RM92m brewery upgrade, Carlsberg’s capital expenditure is set to normalize. This reduction in capex strain raises the potential for an increase in dividend payouts, currently at a high 90% payout ratio.

Environmental, Social, and Governance (ESG) Initiatives

Carlsberg continues to demonstrate its commitment to ESG goals, with key initiatives including:

• Environmental: Aiming for zero carbon emissions and a 50% reduction in water usage at breweries by 2030.
• Social: Promoting responsible drinking with 100% alcohol-free brew availability and responsible messaging.
• Governance: Strong focus on gender diversity with a 67% female representation in management and a 71:29 male-to-female ratio on its board.

Valuation and Recommendation

UOB Kay Hian maintains its BUY recommendation for Carlsberg Brewery Malaysia with a target price of RM25.10. This valuation is derived using a DCF model with a WACC estimate of 7.8% and a terminal growth rate of 3.0%. The implied PE of 21x for 2025F is attractive, considering the company’s robust financial performance and growing dividend yields.

Conclusion

Carlsberg Brewery Malaysia is well-positioned to capitalize on seasonal demand, tourism recovery, and strong operational fundamentals. With stable financials, a promising growth trajectory, and a commitment to ESG initiatives, it remains an attractive investment option for long-term growth. Investors stand to benefit from its robust dividend yield and potential upside as projected by UOB Kay Hian.