Anders en: ‘We would also be unveiling an exciting Chinese New Year campaign.’
Carlsberg Brewery Malaysia Bhd appears to have hit a speedbump in its quest for shareholder value and earnings growth recently with the release of its third quarter results for the financial year 2013 (FY2013) ending Dec 31.
Indeed, its shares, which have performed extremely well this year after hitting a historical all time high of RM17.06 in May has come down to earth and gave up nearly all its gains in the year, correcting some 30% from its peak.
It is not a surprise then that investors are questioning if this signals a speedbump in a somewhat smooth drive ahead or are more potholes expected ahead for Carlsberg.
Speaking to StarBizWeek at Carlsberg’s headquarters in Shah Alam recently, managing director Henrik Juel Andersen naturally maintains that the “green label” brand is still strong in Malaysia despite the intense competition, both from licensed competitors and the unlicensed market as well.
Despite the challenges from the unlicensed market, which some industry observers say could hinder further growth by the licensed operators, Carlsberg maintains it is upbeat on being the fastest growing beer company locally.
Andersen signals that the drop in its net profit in the recently released third quarter results was more of a single speedbump in the road ahead and remains upbeat that earnings growth would likely resume moving forward in FY2014.
“We are well on track with this vision to be the fastest growing company. We are optimistic about our future and the beer industry into FY2014. In FY2014 we would see several positive events taking place that could spur revenue.
“There are also two other events that could help in market expansion and sales namely Visit Malaysia Year 2014 and the World Cup next year. We would also be unveiling an exciting Chinese New Year campaign for our customers in Malaysia,” he adds.
Despite this, Henrik says that the beer industry in Malaysia continues remain challenging and has recently been affected by cautious consumer spending.
The company had recently reported its third quarter net profit falling by 37% in the year-on-year period to RM38.44mil while revenues fell by a smaller measure of 14.3% to RM352.12mil.
Carlsberg attributed this fall in performance to several factors in Singapore which was the stock rationalisation that started in the second quarter and locally, to a trade stocking up a month earlier due to the delayed Budget 2014 announcement.
Henrik says that the industry typically stocks-up prior to the budget announcement as it usually anticipates a hike in excise duties.
“The stocking up happened in the third quarter of September last year while for this year, it has been pushed into the fourth quarter. In fact, if you had exclude the stock loading that took place in September last year our revenue in the third quarter (FY13), on a comparable basis, grew against the same period last year,” he notes.
Andersen notes that it would not be a like-to-like comparison to compare the third quarter of this financial year to the same quarter in the previous year because of this sole factor.
Hong Leong Investment Research’s analyst Grace Chew, however, remains sceptical, noting that this could actually signal underlying weakness for industry growth such as already reaching a saturation point amidst a very competitive market.
“I have toned down my estimates that the local industry would grow by low single digit next year. Although some may think that the results could be offset by further purchases in the fourth quarter, I do not think it would make much of a difference to its bottomline,” Chew says.
“Singapore’s market is not really big: where else can you go? If you study what has happened locally, this has also been reflected in Guinness Anchor Bhd’s weaker set of results in its first quarter ended Sept 30. I think it is more difficult to compete today as well on the backdrop of an increasing illicit beer industry,” she adds.
On the other hand, Alliance Research’s Ian Wan painted a more positive industry outlook saying that he expected fourth quarter net profit to be RM48mil (from RM40.5mil in 4QFY12) but that would still see a year-on-year overall contraction in its full year results.
“I believe the share price has already contracted since the middle of this year and long-term fundamentals are always there as this is a duopoly business. I think the near term hiccups have already been priced into the stock at present.
“Unless its earnings come in even worse than expected in FY13, then I believe this contraction has already been priced in. We see growth trajectory picking up once again in FY14 and this is the reason why I had upgraded the stock from a sell to a neutral rating,” he adds.
Other environment positives that could be looked forward to is the young populace locally that would see their spending power build up over the year moving forward, Wan notes.
Whether one would look at the glass half full or otherwise, it is key that these do not hinder a further scrutinisation of changing attitudes towards the industry in general on the backdrop of the possible gradual change in consumer habits and tastes.
Other factors to consider are a possible pick up in the country’s economy in the fourth quarter and the brand equity or loyalty that could see either one company growing most likely at the expense of the other amidst strong competitive pressures.
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