EVEN as brewers are allowed to continue their operations during the movement control order (MCO 2.0) period – manufacturing being among the five sectors allowed to operate – social distancing-related restrictions will pose a bane to the industry.
In CGS-CIMB Research’s assessment, strict movement measures would lead to lower malt liquor market (MLM) sales, particularly for on-trade MLM sales in states under MCO following dining-in ban at food outlets (including those that retail alcoholic products).
“In addition, we believe that off-trade MLM sales will also be negatively affected by the ban on social activities involving gatherings in states placed under MCO 2.0 (except for Sarawak, the entire country will come under MCO 2.0 from Jan 22),” opined analyst Walter Aw in a brewery sector update.
Based on CGS-CIMB Research’s estimates, every fortnight of MCO 2.0 implementation will lower its FY2021F earnings per share (EPS) forecasts for Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd by 3.2% and 5.9% respectively.
“In our view, Carlsberg will be less impacted vs Heineken given that 26.7% of the former’s revenue (9M 2020) is derived from its Singapore operations (while bulk of Heineken’s revenue is derived locally),” projected the research house.
“Note that, we have yet to account for this in our FY2021F earnings per share (EPS) for both companies pending further updates on length of the implementation of MCO 2.0.”
Despite expected near-term weakness in MLM volumes, CGS-CIMB Research believes long-term demand for beer will remain inelastic in Malaysia.
“This is backed by its attractiveness in terms of better affordability among consumers due to its lower price points (vs other premium alcohol products such as wine or spirits),” opined the research house.
“Also, beers are more widely available as they are sold in more off-trade and on-trade locations (coffee shops, food courts, etc.).”
All-in, CGS-CIMB Research stays “neutral” on the brewery sector with “hold” ratings on both Heineken and Carlsberg.
“We prefer Carlsberg for exposure to the sector given its (i) diversified revenue base (exposure to Singapore market); (ii) cheaper valuations; and (iii) higher dividend yields,” suggested the research house.
“In our view, current sector valuation (slightly above its five-year historical mean) has largely accounted for near term weakness in the operating environment.” – Jan 20, 2021
