Established in 1969, Carlsberg Brewery Malaysia Berhad (CBM) is presently one of two licensed and approved breweries operating in Malaysia. CBM brews its flagship Carlsberg beers and a diverse range of premium beer brands from its plant and distributes them across stores in Malaysia and Singapore.
Since 2016, CBM has embarked on its corporate strategy named ‘SAIL ‘22’. This involves execution of three main strategic levers:
- Strengthen the core
- Position for growth
- Deliver value for shareholders
As I write, CBM is in its fourth year of its SAIL 22 strategy, so how has the company fared thus far? In this article, I’ll be bringing an update on CBM’s latest developments, financial results, and valuation figures.
Here are 14 things to know about Carlsberg Brewery Malaysia before you invest.
Strengthen the core
1. CBM recorded a 12% increase in sales volume for mainstream brands like Carlsberg and Carlsberg Smooth Draught in 2018. This is due to a remarkable 58% jump in sales volume for Carlsberg Smooth Draft. Collectively, the success is the fruit of the company’s relentless marketing and branding efforts for its flagship products, especially during Chinese New Year and sporting events like football parties all-year round.
Position for growth
2. CBM recorded a 20% increase in sales volume for brands in the premium segment. Connors’ Stout, Kronenbourg 1664 Blanc, and Somersby had impressive growth of 42%, 40% and 24% in sales volume respectively, while Asahi Super Dry managed a 8% increase in 2018. The impressive sales growth for Connors’ Stout is due to CBM’s Stout Challenge campaign where CBM hosted live on-the-ground engagements with curious consumers and passersby in over 80 hotspots nationwide throughout 2018.
3. In December 2017, CBM partnered with Brooklyn Brewery to bring in signature brews: Brooklyn Lager and Brooklyn East IPA for local beer connoisseurs in Klang Valley, Malaysia. They include
- The Brew House @ SS2
- MEJA @ TREC, KL’s Largest Entertainment and F&B Hangout
- MEJA @ Sunway Velocity
- Tavern 13 @ Seksyen 13, Petaling Jaya
- Chequers @ Solaris Mont Kiara
- The Merchant @ Hotel Armada, Petaling Jaya
- Suzie Wong @ Wisma Lim Foo Yong
- Nicsmann 1940 By Lewré @ The Starling Mall
4. Soon after, on 14 November 2018, CBM launched the Brooklyn Bar at SkyAvenue, Resorts World Genting. This outlet is the Brooklyn’s first flagship outlet in Southeast Asia, allowing consumers to enjoy Brooklyn beers straight from the tap at 6,000 feet above sea level while enjoying cool mountain air at Genting Highlands.
Deliver value to shareholders
5. CBM’s operations in Malaysia achieved 20.7% growth in revenues to RM1.41 billion in 2018 from RM1.17 billion in 2017. Its growth is in tandem with CBM’s growth in sales volumes for its flagship brand – Carlsberg — and its premium brands segment. This resulted in a 17.4 jump in segment profits to RM254.6 million in 2018 from RM216.9 million in 2017.
6. CBM’s operations in Singapore reported a 4.7% dip in revenue to RM569.1 million in 2018 from RM597.3 million in 2017. However, it reported an improvement in segment profits to RM92.9 million in 2018 from RM82.6 million in 2017.
7. CBM owns a 25% stake in Lion Brewery (Ceylon) Plc (Lion) in Sri Lanka. Its performance was affected by floods in 2016, resulting in Lion’s first loss after a run of profit growth since 2009. In 2017, Lion started on its recovery work and, hence, contributing to a recovery in profits a year later. Lion made RM84.4 million in net profit in 2018, of which CBM’s share is RM21.0 million.
8. Group revenues grew 12.1% to RM1.98 billion in 2018 from RM1.77 billion in 2017. (Based on 2017 adjusted revenue, growth was 14.6%.) This was mainly due from higher revenues reported by CBM’s Malaysian operations which offset a slight drop in sales by its Singapore operations. CBM has maintained steady operating margins at 15-17% annually since 2012 as a result of efficient manufacturing and distribution practices. Coupled with Lion’s strong recovery in 2018, shareholders’ earnings increased by as much as 25.3% to RM277.2 million in 2018, up from RM221.2 million in 2017.
9. From 2009 to 2018, CBM generated RM2.25 billion in cash flows from operations, raised RM45.1 million in net long-term debt, and received RM13.9 million in dividends from its associate company, Lion Brewery in Sri Lanka. Out of which, it has spent:
- RM314.1 million on capital expenditures
- RM1.78 billion in dividends to its existing shareholders
CBM is a cash-generative business and does not need to continually raise equity or borrowings to expand its business or to reward its shareholders with dividends.
Business risks
10. As at 17 September 2014, CBM has two bills of demand from the Royal Malaysian Customs in relation to:
- RM35.7 million in excise duty from 1 July 2011 to 14 January 2014
- RM13.8 million in sales tax from 1 July 2011 to 14 January 2014
- RM6.8 million in penalty on sales tax stated above
There are no further developments on the two bills of demand. CBM does not admit liability for the two bills of demand and is now in discussions with its legal counsel and the authorities to resolve this matter.
11. CBM revealed it expects tougher competition for beer imports after the implementation of the EU-Singapore Free Trade Agreement starting in year 2019. Under this new agreement, Singapore will be granting duty-free access for all imports from the European Union which includes beers and stouts.
Valuation
As at 29 April 2019, CBM is trading at RM24.46 a share.
12. P/E ratio: In 2018, CBM generated RM0.91 in earnings per share. Thus, its current P/E Ratio is 26.9, the highest in 10 years and significantly higher than its 10-year average of 18.3.
13. P/B ratio: As at 31 December 2018, CBM reported net assets per share of RM0.55. Thus, its current P/B Ratio is 44.5 — a substantial jump from 10-15 times book valued recorded from 2012 to 2017. The jump in P/B was caused by a decline in shareholders’ equity as CBM reduced its retained earnings after it paid a higher dividend over the past two years.
14. Dividend yield: In 2018, CBM paid RM0.92 in ordinary dividends per share. Therefore, if CBM maintains its dividend, its yield is 3.55% — the lowest since 2011 and below its 10-year average of 4.63%.
The fifth perspective
Carlsberg Brewery Malaysia has delivered steady growth in sales, profits, and dividends to shareholders over the past 10 years. As a result, its stock price has risen upward over the past decade. A 25% jump in share price over the past few months saw CBM reach an all-time high of RM27.16 in April 2018.
Even though it has come down slightly in the past month, CBM is still trading well above its historical valuations. As a value investor, Carlsberg Brewery Malaysia is a great business to own, but probably not at this price right now.
Hi Ian Tai, agreed with you RM24.46 is overvalued. From Morningstar fair value <RM19.96 & undervalued <RM16.77. What is your undervalue for CBM?
Hi Lau, I don’t have a target price. If I find that CBM is trading below its 10-Year P/E and above its 10-Year Dividend Yield, then, CBM is either a fair or undervalued deal. To me, P/E and Dividend Yield are more important than its stock price.
Hi Ian, where to find 10-Year P/E and above its 10-Year Dividend Yield? Thanks.