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3Q21 results fell short

Maintain BUY with a lower DCF-TP of MYR24.00

CAB’s 3Q21 results fell below our/consensus expectations given the adverse impact of lockdowns on plant operations and sales volume in both Malaysia and Singapore. With the gradual reopening of F&B businesses and interstate travel, we expect stronger sales volume to come through in 4Q21. Our FY21 earnings estimate is reduced by 8% but FY22-FY23 estimates are unchanged. Maintain BUY with a lower DCF-TP of MYR24.00 (-10sen; WACC: 8%, LT growth: 3%).

Weaker-than-expected margins

CAB’s 3Q21 core net profit of MYR31m (-23% YoY, -16% QoQ) brought 9M21 core net profit to MYR135m (+5% YoY). The latter reflected 61%/64% of our/consensus full-year earnings estimates. The earnings shortfall was mainly from weaker operating margins. No dividend was declared this quarter (YTD: 10sen/shr, 3Q20: Nil).

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Weaker topline at both MY & SG YoY

3Q21 group revenue fell 20% YoY led by underperformances in both Malaysia (-25% YoY) and Singapore (-10% YoY) where the mandatory halt in plant operations, along with tighter lockdown restrictions in both countries resulted in lower sales volume. 3Q21 EBIT fell by a wider 37% YoY due to ongoing fixed costs incurred throughout the manufacturing disruptions in the quarter. CAB’s associate contribution also reported a 49% YoY decline. On a QoQ basis, revenue was flat but EBIT fell 34% QoQ given higher operating costs resulting from the extended period of its plant shutdown (1 Jul – 15 Aug) as compared to 2Q21 (2 Jun – 30 Jun).

Better earnings expected in 4Q21

We anticipate stronger sales volume in 4Q21 in tandem with the relaxed movement restrictions and improved consumer spending during year-end celebrations. Our volume growth assumptions (unchanged) are -7%/+20% in FY21/FY22E. CAB’s recently announced price hikes (from 15 Nov) will also partially ease raw material cost pressures going forward. Nevertheless, we lower our FY21 earnings estimates by 8% upon adjusting for lower EBIT margin assumptions by c.1%, and softer contribution from its Lion Brewery associate in Sri Lanka. Our FY22-FY23 earnings estimates are unchanged.