Record Profits at Historic Low Valuations: Is Carlsberg Malaysia Mispriced?

Carlsberg operates a beer duopoly alongside Heineken in Malaysia. Both have strong brands and distribution networks, are backed by major multinational groups, and enjoy scale advantages and significant barriers to entry.

At the global level, Heineken is still majority family-owned, while Carlsberg is owned by the Carlsberg Foundation which is a not-for-profit institution.

This industry is not a high growth one, the narrative has started to change that it’s transitioning into sunset like the tobacco industry, especially in Malaysia.

Today, there are more talks of political pressure towards the Malaysia beer industry and slowdown in alcohol consumption in the younger generation.

All in all, Malaysia beer market has matured, with one of the highest excise duties in the world + shrinking beer-drinking population. I am also personally not an avid beer drinker.

However, the financial numbers seem to be telling a different tale, with Carlsberg just reporting record high profits last year and continuing to invest substantial sums of money to expand capacity and efficiency in its Malaysian plant.

Today, Carlsberg trades at near its 10-year low share price (or about 8-year low if adjusting for dividends), in spite of revenue and profit growth through the years.

Carlsberg is interesting to me because the business is:

• Profitable and cash generative;

• Highly asset light; and

• Continues to invest and expand.

These seem to go against the overarching narrative of a sunset industry.

For the purpose of this article, “Carlsberg” refers to Carlsberg Malaysia unless stated otherwise

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