A Commendable End to FY24 for Carlsberg Brewery Malaysia

Carlsberg Brewery Malaysia (CAB MK) has delivered an impressive conclusion to its fiscal year 2024, according to Maybank Investment Bank Berhad. The company’s 4Q24 results met expectations, solidifying its position as a strong contender in the consumer staples sector. While a slight dip in earnings is anticipated for 1Q25 due to pre-Chinese New Year (CNY) front-loading in December 2024, the easing of raw material costs is expected to stabilize operating margins in FY25.

The brokerage maintains its BUY recommendation with a revised discounted cash flow-based target price (DCF-TP) of MYR24.40, up from MYR23.10. Despite trading below its historical mean price-to-earnings ratio (PER) at 17x FY25E PER, the stock offers undemanding valuations and robust yields exceeding 5%.

Key Highlights of 4Q24 Performance

Carlsberg’s 4Q24 core net profit reached MYR79 million, marking an 18% year-on-year (YoY) increase but a 13% quarter-on-quarter (QoQ) decline. This brought its FY24 core net profit to MYR348 million, a 10% YoY growth, which accounted for 97% of Maybank’s and 100% of consensus full-year earnings estimates. A final dividend per share (DPS) of 35 sen was declared, bringing the FY24 total to 100 sen, with a dividend payout ratio (DPR) of 91% compared to 85% in FY23.

Strong performance in Malaysia offset weaker contributions from Singapore. Malaysian sales grew by 7% YoY, benefiting from pre-CNY front-loading activities. However, Singaporean sales declined by 11% YoY, affected by the transition to the Sapporo brand from Asahi and subdued consumer spending in modern on-trade channels. Group revenue increased marginally by 1% YoY, driven primarily by volume rather than margin expansion.

Improvements in FY25 Outlook

For FY25, Carlsberg is expected to see a modest earnings growth of 4% YoY, underpinned by a 3% YoY increase in volume and improved consumer sentiment. Although aluminum prices are set to rise due to the removal of China’s export VAT rebates effective December 1, 2024, the easing of other raw material prices like wheat is expected to offset this impact. Management has indicated that operating margins should remain stable, reducing the need for aggressive price hikes in 2025.

Performance Metrics and Financials

The company’s financial metrics have shown steady growth across key areas:

• Revenue: FY24 revenue stood at MYR2,376 million, a 5.1% YoY increase.
• EBITDA: FY24 EBITDA grew by 14.1% YoY to MYR526 million.
• Core Net Profit: FY24 core net profit climbed 23% YoY to MYR389 million.
• Net Gearing: The company reported a net cash position starting from FY24.
• Net Dividend Yield: Estimated at 5.3% for FY25, up from 4.8% in FY24.

The Malaysian operations contributed significantly to revenue and EBIT, with Malaysia accounting for 73.8% of total revenue in FY24, up from 70.1% in FY23. In contrast, Singapore’s contribution declined to 26.2% from 29.9% over the same period.

Segmental Insights

Malaysia

Revenue grew by 6.5% YoY to MYR433.4 million in 4Q24, contributing to a full-year growth of 8.8% YoY to MYR1,752.2 million. EBIT margins improved by 1.7 percentage points YoY to 18.2%, reflecting strong operational efficiency. The segment’s EBIT accounted for 85.8% of the group’s total EBIT in 4Q24.

Singapore

Revenue in Singapore declined by 11.4% YoY to MYR153.8 million in 4Q24, with full-year revenue contracting by 4.1% YoY to MYR624.2 million. EBIT margins fell by 4.9 percentage points YoY to 8.9%, as premium volumes were impacted by the brand transition and weak consumer spending.

Investment Risks

Several risks could impact Carlsberg’s earnings and target price:

• Regulatory changes, such as excise tax increases, could negatively affect profitability.
• Volatility in raw material prices, including aluminum and wheat, may pressure margins.
• Currency fluctuations, especially Malaysian Ringgit (MYR) against Singapore Dollar (SGD), could impact earnings, as 30-35% of sales are denominated in SGD.

Conclusion and Recommendation

Maybank Investment Bank Berhad reiterates a BUY recommendation for Carlsberg Brewery Malaysia with a target price of MYR24.40, offering a 26% upside from the current share price of MYR20.26. The company’s robust operational performance, stable margins, and attractive dividend yields make it a compelling investment in the consumer staples sector.