THE latest news about the Kuala Lumpur City Hall banning the sale of beer at traditional grocery stores, convenience stores and Chinese medicine halls with effect from Oct 1 next year is deemed to have little impact on the brewery sector.
For the record, the above ruling carry three key messages, namely (i) sale of beer from 7am to 9pm only; (ii) separate display or exhibition of beer beverages from other forms of beverages; and (iii) display should be locked beyond allowed window of sale.
For now, UOB Kay Hian Research sees the impact to be muted as:
- Tightened guidelines on beer sales and availability would be limited to Kuala Lumpur. That said, other city councils may opt to adhere to similar guidelines but for now, the impact is limited.
- Sales through the off-trade channel command up to 30-35% of total revenue. However, the research house believe most sales are generated through hypermarkets and supermarkets and within the 7am-9pm window in traditional grocery stores and convenience stores.
- Traditional grocery stores do not usually operate till late, thereby with the shorter beer sales hours, forgone sales will be limited.
- Convenience stores’ beer sales will be most curtailed as stand-alone convenience stores typically operate 24/7, generating beer sales past the 9pm cut-off. The research house expects sales through convenience stores past 9pm in Kuala Lumpur may amount to 1-2% revenue contribution for (the) Heineken and Carlsberg (brands).
- Offsetting factors include diverted sales to various sales channels/formats and pre-planned purchases of beer.
“The tightening of liquor sales is likely aimed to lower instances of drunk driving and alcohol-related public nuisance during the graveyard hours that are hard to police,” observed analyst Philip Wong in a brewery sector update.
“We believe the Kuala Lumpur City Hall intends to finely balance maintenan6ce of public order and to minimally disrupt beer sales by restricting sales at specific sales channels and operating hours.”
All-in, the research house maintained its “overweight” call on the brewery segment with “buy” rating on Heineken Malaysia Bhd and “hold” on Carlsberg Brewery Malaysia Bhd.
“For exposure to the brewery sector, we like Heineken as its valuations are more palatable,” reckoned Wong.
“Our discounted cash flow-based target price of RM25.80 implies 22.0 times FY2021F price-to-earnings ratio (PE) as opposed to Carlsberg’s implied PE of 27.9 times based on our target price of RM24.30.”
Apart from that, UOB Kay Hian Research expects Heineken to benefit greatly from border re-opening given its better traction with tourists arising from its more internationally recognisable brands coupled with its higher operating leverage. – Nov 17, 2020
