WITH Malaysia transitioning into the endemic phase of COVID-19 from April 1, Malaysian brewers look set to rejoice from better consumer sentiment amid lifting of lockdown measures.
The latter, according to CGS-CIMB Research, takes the form of re-opening of country borders (incoming foreign tourists), removal of limited operating hours for businesses and higher capacity limits for events.
“On top of that, we expect an increase in work-from-office activities, resulting in higher footfall at key on-trade sales locations,” projected analysts Walter Aw and Khoo Zhen Ye in a brewery sector update.
“This is set to drive higher on-trade sales which have been weak (estimated to be 30-40% lower compared to pre-COVID-19 levels). Overall, we have pencilled in a recovery in malt liquor market sales of 16%/7%/5% for FY2022F/2023F/2024F.”
Reiterating its “overweight” outlook on the sector, CGS-CIMB Research also retained its “add” calls on both Carlsberg Brewery (M) Bhd and Heineken Malaysia Bhd.
“The brewery sector is currently trading at 22.3 times CY2022F P/E (price-to-earnings ratio) which is at a 20% discount to the sector’s five-year historical mean of 27.8 times,” observed the research house.
“In our view, the sector should trade higher on the back of (i) defensive nature of its business given the inelastic demand for beers; (ii) strong earnings growth profile from higher margins and increase in sales volume as well as (iii) solid dividend yields (FY2021-2023F: 2.1-4.1%). The downside risk is lower-than-expected MLM (multi-level marketing) volumes.”
While the research house has ‘add’ calls on both brewers under its coverage, the research house said it prefer Carlsberg to Heineken.
“While Malaysia’s MLM market accounts a bigger share of Heineken’s revenue (>99% in FY2020) compared to Carlsberg (66% of FY2021 revenue from Malaysia), we expect the latter to be the greater beneficiary given its bigger exposure to on-trade sales channel than Heineken,” noted the research house.
“We also like Carlsberg for its cheaper valuation (6.3% discount to Heineken’s one-year forward P/E) and higher dividend yields. Re-rating catalysts for Carlsberg include the full re-opening of Singapore’s borders and less restrictive SOP for entertainment outlets (nightclubs, dance clubs, etc) in our view.” – March 23, 2022
