KUCHING: Weaker sales stemming from the absence of Chinese New Year frontloading as well as the movement control order (MCO) since March 18 has dampened the performance of Carlsberg Brewery Malaysia Bhd (Carlsberg) as can be seen by a drop in its earnings.
For the first quarter of financial year 2020 (1QFY20), the group recorded 11 and 17 per cent year on year (y-o-y) drop in respective sales and earnings.
“The softer earnings were largely dragged by the absence of CNY front-loading this quarter as well as weaker on-trade sales from both Malaysia (enforced MCO from March 18 – May 3) and Singapore triggered by the pandemic outbreak,” highlighted the team at Kenanga Investment Bank Bhd (Kenanga Research) yesterday.
Note that Singapore’s Circuit Breaker spanned from April 7 to June 1, hence its full-impact to on-trade sales can be expected in the coming 2QFY20 quarter.
“Post-meeting, we gathered that a number of on-trade channels in Malaysia – divided into 20 to 30 per cent of modern on-trade and circa 70 per cent of traditional on-trade – have gradually resumed operations after the implementation of Conditional MCO from May 4, which saw a week-on-week growth from the on trade sales numbers,” it continued.
“Nonetheless, the group’s on-trade sales growth could still be capped for the year, as the expected week-on-week growth from an extremely low base during MCO and the recovery from such channels moving forward are expected to be limited by shorter operating hours and lower capacity per store in compliance with social distancing measures, as well as slim possibility for the re-opening of night clubs and KTVs in the near-term.”
Given the considerably tremendous impact from the virus outbreak, Kenanga Research believed Carlsberg Malaysia will be exercising more controlled and targeted cost controls moving forward.
“Notably, marketing efforts will be mainly redirected towards digital marketing on social media platforms to drive growth from its off-trade and e-commerce channels, tapping into the shifting consumer purchasing patterns.
“We gathered that the group has also restructured close to 50 per cent of its sales force.
“Post meeting, we affirmed our cautious outlook on the group’s near term prospects as a bulk of its earnings look to be compromised by weaker on-trade sales which takes up two-third of the group’s total sales.
“Hence, we revised our FY20E earnings downwards by 16.2 per cent while maintaining FY21E earnings forecast, as we account for more aggressive sales cuts and lower marketing costs in FY20.”