Carlsberg Brewery Malaysia Bhd, which currently holds a 40% share of the country’s malt liquor market with its beer brands such as Carlsberg, Kronenbourg 1664, Asahi and Connor’s, is one of the companies on Bursa Malaysia that have been consistently paying dividends over the years. Despite the unprecedented impact, uncertainty and volatility of the Covid-19 pandemic, the group paid out 75.4% of its net profit as dividends in the financial year ended Dec 31, 2020 (FY2020).

Carlsberg Malaysia paid out 100 sen per share consecutively for FY2019 and FY2018, representing 105.1% and 110.3% of net profit respectively. However, its dividend payments fell to 40 sen per share last year, following a bumpy first-half with the decision to suspend quarterly dividends in favour of protecting its financial position and managing costs.

Profit after tax (PAT) for FY2020 declined 44% year on year (y-o-y) to RM162.2 million from RM291 million, due to a poorer-than-expected recovery in sales volumes. It achieved PAT of RM277.2 million in FY2018 and RM221.2 million in FY2017.

Carlsberg Malaysia’s return on equity (ROE) had risen to 183.3% in FY2019 from 118.4% in FY2018, but fell to 102.5% in FY2020. This works out to an adjusted weighted ROE over three years of 129.9% — outperforming its peers. It once again snagged the pole position in this year’s The Edge Billion Ringgit Club (BRC) Award for highest ROE over three years (2017 to 2020) in the consumer products and services sector.

While dine-in has been allowed for fully vaccinated individuals in Malaysia, Carlsberg Malaysia’s outlook remains mixed. The group’s brewery operations resumed from Aug 16, after an 11-week suspension since June, with 80% of its personnel on-site.

“Hurdles remain; notably, entertainment venues and bars in Malaysia remain closed and Covid-19 cases in Malaysia continue to rise, leading us to believe consumers may be reticent to return to available on-trade venues for the time being,” Hong Leong Investment Bank Research wrote in an Aug 23 note to clients.

The group will remain focused on preserving cash and liquidity in the near to medium term, Carlsberg Malaysia said on Aug 20, when announcing its financial results for the six months ended June 30, 2021 (1HFY2021).

In 1HFY2021, net profit came in 24% higher at RM103.59 million compared with RM83.6 million a year ago, as revenue rose by a marginal 0.5% y-o-y to RM881.2 million.

The group also expressed concern that the lockdown in Malaysia has led to the proliferation of the illicit beer trade. The Confederation of Malaysian Brewers Bhd estimates that 20% of the beer and stout market in Peninsular Malaysia is illicit, while that number is much higher in Sabah and Sarawak — estimated at up to 80%.

According to CGS-CIMB Research, since the pandemic began in March 2020, brewers have been focusing on increasing operating efficiency. Efforts include digitalisation and streamlining of operations, including headcount optimisation.

“With these cost containment exercises since the first Movement Control Order (MCO), both Carlsberg Malaysia and Heineken Malaysia Bhd should benefit from margin expansion in the long term. In addition, both brewers have stated plans to further raise their products’ selling prices. Despite mainly passing on higher raw material costs, we expect the quantum of price increases to be more than sufficient, leading to better margins,” the research firm said in a Sept 9 report.

CGS-CIMB Research likes Carlsberg Malaysia based on an expected stronger recovery in sales given its exposure to the Singapore market (accounting for 32% of 1HFY2021 revenue) and strong traction in its premium beer segment, leading to a more profitable sales mix.

While analysts believe the worst is over for Carlsberg Malaysia with the loosening of MCO rules, CGS-CIMB Research says another lockdown leading to another suspension of brewers’ operations and/or a weaker-than-expected malt liquor market sales volume are downside risks for the group.