For a third year running, Carlsberg Brewery Malaysia Bhd has snagged the pole position in The Edge Billion Ringgit Club awards for highest return on equity (ROE) over three years in the consumer products and services sector.

Its ROE improved to 106.1% in FY2021 from 102.5% in FY2020, but was still short of the 183.3% achieved in FY2019. Nonetheless, the adjusted weighted ROE over three years of 120.4% during this year’s awards review period between FY2019 and FY2021 is more than sufficient for it to outperform its sectoral peers.

Carlsberg Malaysia, with a portfolio of beer and cider brands including 1664, Asahi, Somersby and Connor’s, has delivered decent dividends to its shareholders over the years on the back of stellar earnings.

The company’s dividend per ordinary share for its full financial year ended Dec 31, 2021 (FY2021) was 56 sen or equivalent to RM171.2 million, which is 85.2% of its net profit of RM201 million. This was higher than the 40 sen or RM122.3 million (75.4% of its net profit) in FY2020 but below the RM1 per share disbursed for FY2019 and FY2018, representing 105.1% and 110.3% payout of net profit respectively.

Its net profit of RM201 million in FY2021, on the back of RM1.8 billion in revenue, was an increase of 23.9% compared with RM162.2 million in FY2020. Before the two pandemic-hit years, Carlsberg had achieved a higher net profit of RM291 million in FY2019 and RM277.2 million in FY2018.

In its 2021 annual report, Carlsberg said that the group’s top line was impacted by lower sales due to the suspension of brewery operations and several other restrictions during the lockdowns in both Malaysia and Singapore.

It added that its bottom-line growth was mainly driven by stringent cost controls, and lower sales and administration expenses, coupled with a better premium mix.

When announcing its financial results for the second quarter of 2022 ended June 30, 2022 (2QFY2022), Carlsberg said the group was mindful of uncertainties in the macroeconomic environment driving up inflationary pressures, which will have a negative impact on consumer sentiment and spending on beer.

While earnings in the first half of 2022 saw higher year-on-year growth with Malaysia and Singapore transitioning into the endemic phase of Covid-19, Carlsberg notes that the impact of the Prosperity Tax announced in the 2022 Budget will be felt in the remaining quarters of FY2022.

Even so, a check on Bloomberg data at the time of writing showed seven out of 10 analysts recommended a “buy” on the stock since August this year while the remaining three were “neutral’’. Credit Suisse had the highest target price at RM30 while Kenanga Investment Bank Bhd’s was the lowest at RM23.05 per share.

In a note dated Oct 4, UOB Kay Hian Research says it remains sanguine over Carlsberg’s prospects where it foresees pockets of further recovery in the modern on-trade channel.

“Management indicated that despite the reopening of modern on-trade outlets, it is still about an estimated 10% lower versus pre-pandemic levels. Positively, [the] remainder of the channel (traditional on-trade and off-trade) outlets are back to pre-pandemic levels,” the research firm says.

“However, at this juncture, the number of outlets does not seem to have an impact on sales, with 2Q2022 sales well surpassing pre-pandemic levels (2Q2019) by 27%. But with possible reopening of modern on-trade outlets, it could provide some uplift going forward.”

Maybank Investment Bank Bhd also has a positive outlook on Carlsberg, observing that the company’s cost increases are partially mitigated and its two new bottling lines are expected to be ready by 4Q2022.

“The group’s major raw material components are malt and aluminium cans, of which around 80% of Carlsberg’s annual requirement has been hedged through fixed price contracts. Although raw material average selling prices have eased in recent months, the cost benefits will only arise from FY2023 onwards,” it says in a note on Oct 6.

“Malt purchases are Carlsberg’s largest exposure to USD against ringgit currency appreciation. However, the group’s export sales in SGD and USD will act as a natural hedge to any unfavourable foreign exchange moves in the near term,” Maybank adds.

As at June 30, 2022, Carlsberg had cash and cash equivalents of RM126.3 million while its loans and borrowings were RM111.7 million.