Malaysia: Carlsberg Brewery Malaysia share price slumps on profit miss

Carlsberg Brewery Malaysia Bhd topped Bursa Malaysia's leading decliners on June 1 after its share price closed down RM2.70 or 9.35% at RM26.18 as investors weighed the company’s first quarter earnings miss and took cue from its dividend suspension. At 5pm, Carlsberg ended with a volume of 752,700 shares, The Edge Markets reported.

Carlsberg was traded between RM25.98 and RM27.98 on June 1. At its closing share price of RM26.18, the brewer has a market capitalisation of RM8 billion.

On Friday (May 29), Carlberg said net profit fell to RM72.96 million in the first quarter ended March 31, 2020 (1QFY20) from RM87.6 million a year earlier. Revenue declined to RM589.87 million from RM659.92 million, it said.

On June 1, Hong Leong Investment Bank Bhd analyst Gan Huan Wen said Carlsberg's core profit after tax and minority interest at RM73 million made up 25.1% and 25.7% of Hong Leong’s and consensus forecasts respectively.

"We deem this below expectations as 1Q is seasonally a strong quarter, typically making up ~30% of full year earnings. Additionally, we expect significantly weaker earnings in 2Q due to (the) MCO (movement control order). The shortfall in earnings was due to steeper-than-expected decline in sales from the Covid-19 outbreak.

"Post annual report update and adjusting for lower expected sales in 2QFY20, we lower our FY20/21 earnings forecasts by 11.5%/1.6%. While we raise our target price (TP) from RM18.60 to RM21.00 (largely on valuation parameter changes), our rating downgraded from 'hold' to 'sell' given recent share price run up but more importantly, the suspension of dividends which was supposed to provide some assurance in these trying times,” Gan said.

Affin Hwang Investment Bank Bhd analyst Chow Wei Nien wrote in a note on June 1 that in view of the Covid-19 impact on Carlsberg’s cash flow, Carlsberg decided to suspend its quarterly dividend payments, which is a negative surprise.

"The group indicated that some of 2020’s focus will be on preserving cash and ensuring sufficient liquidity for the year. Post our earnings cuts of 3%-10% for 2020-21E, we maintain our 'sell' rating on Carlsberg, albeit with a higher TP of RM18.50 (from RM17.50), after rolling forward our DCF (discounted cash flow) base year. Carlsberg’s 1QFY20 core net profit of RM74.4 million fell below our and consensus expectations,” Chow said.

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