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Early signs of recovery

Maintain BUY with a lower DCF-TP of MYR23.95

Relaxed movement restrictions have led to better sales volume in CAB’s off and on-trade channels. Its recent price hike will also partially buffer rising raw material costs in the coming quarters. We lower our FY22-FY23 earnings estimates by 1%-4% after adjusting for higher tax expenses from Cukai Makmur prosperity tax and foreign sourced income (FSI). Maintain BUY with a lower DCF-TP of MYR23.95 (WACC: 8%, LT growth: 3%).

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Experiencing better sales volume

With CAB’s brewery reopening and the resumption of dine-ins in Malaysia, overall sales has increased given off-trade restocking activities and higher on-trade consumption. Its Singapore operations should also gradually improve in tandem with relaxing measures for dine-ins. Separately, although the potential ban of alcohol sales in Kedah has cast a negative light on the sector, the likelihood of the ban extending to Langkawi may be slim in light of the Federal Government’s intention to reignite domestic & international tourism in Malaysia. Duty-paid volumes in Kedah are small, we believe.

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Price hikes to offset higher raw material costs?

CAB did not share the quantum of its price hike (effective 15 Nov 2021) but clarified that it affected a selected number of on-trade products only. Given the timing of the price adjustment in the midst of easing movement restrictions, we do not expect consumer demand to soften. This will also provide more breathing room for CAB to defend margins in light of rising commodity costs. Note that CAB hedged its aluminium and malt costs until 1H21 and acknowledged that margins may come under pressure if raw material costs continue to increase going forward.

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Potential tax implications

The Cukai Makmur prosperity tax could amount to an additional c.MYR10- MYR13m tax expense in FY22. As for the tax on FSI from 1 Jan 2022 onwards, this would have an impact on CAB through the remittance of dividends from its Singapore operations. We believe management will take advantage of the Government’s proposed taxation of 3% on FSI’s remitted from the period of 1 Jan 2022 to 30 Jun 2022 to minimise its earnings impact in FY22. We lower our FY22/FY23 earnings estimates by 4%/1% upon adjusting for the aforementioned tax measures.

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