Malaysia: Worst of Carlsberg Brewery Malaysia Bhd’s year-on-year revenue declines is over, analysts say

The worst of Carlsberg Brewery Malaysia Bhd’s year-on-year (y-o-y) revenue declines is over and the group’s y-o-y revenue growth should turn positive by the second half of 2024 (2H24), says CGS International (CGSI) Research.

It said local breweries are expected to receive an added boost in consumption demand from a further recovery in tourist arrivals and improved economic activity in the latter half of the year.

“We see earnings before interest and tax margin of 18.1% for the financial year 2024 (FY24) versus 17.9% in FY23, as improved demand should lead to reduction in marketing spend in 2024 versus the elevated levels in 2023,” the research house said in a report.

CGSI Research trimmed its FY24 and FY25 net profit forecast for Carlsberg by 9.2% and 10.3%, respectively, following a review of its estimates.

“We reduce our FY24 and F25 revenue estimates by 10.6% and 10.4%, respectively, to reflect a more normalised base post the elevated levels of 2022,” it said.

The research house said the industry revenue as a percentage of nominal gross domestic product (GDP) was back at 0.23%, despite 2023 being a weak year for local brewers with a 7.4% y-o-y decline in revenue.

It added that the 0.23% figure is similar to the average of 0.24% experienced in 2015 to 2019 and that 2022’s 0.26% of nominal GDP was an outlier.

“Our revised estimates post the brewery’s fourth quarter of 2023 results place 2024 to 2026 projected industry revenue at 0.23% of nominal GDP.

“We expect 2024 demand to be supported by a further recovery in tourist arrivals, which we believe was a significant contributor to the 2019 jump in industry revenue,” CGSI Research said.

Improved economic activity going into 2H24 will also be a positive for the sector, it noted.

“We believe younger adults have incrementally switched to liquor and craft beer products, which are not distributed or manufactured by the listed breweries under our coverage – explaining the longer-term downtrend in Malaysian brewery revenue as a percentage of nominal GDP,” it said.

CGSI Research reiterated an “add” call on Carlsberg with a target price of RM22.70 a share, with other re-rating catalyst being stronger tourist flows spurring better-than-expected beer consumption.

It said the key downside risks remains to be a stronger pivot away from beer by younger drinkers impacting its sales, weaker economic activity and elevated cost of living pressures weighing on beer consumption, as well as elevated marketing activity crimping its margins without stimulating demand.

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