THE requirement for coffee shops and restaurants in Malaysia to obtain a liquor licence to sell beers and other alcoholic products effective Jan 1 next year is negative for brewers as such move could lead to lower sales.
Based on CGIS-CIMBS’s in-house estimates, sales of beer and stout in traditional on-trade sales locations (coffee shops and restaurants) made up an estimated 10%-15% of total sales prior to the start of COVID-19 pandemic (before March 2020).
“However, we believe that this number has plummeted further since COVID-19 due to movement restrictions and various lockdowns that led to lower beer and stout sales at these locations,” opined analyst Walter Aw in a brewery sector update.
Assuming the enforcement of liquor licence for all restaurants and coffee shops comes into effect from Jan 1, CGS-CIMB Research expects brewers’ sales volume to be impacted given:
- Owners may opt not to apply for this licence (RM840-RM1,320 licence fees per year based on operating hours), resulting in an inability to sell alcoholic products;
- This may lead to lower affordability as these sales locations may raise selling prices to compensate for the licensing fee; and
- Some restaurants and coffee shops could cease operations due to lower overall profitability.
Based on the research house’s sensitivity analysis, every 10% reduction in traditional on-trade sales will lower Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd’s FY2022-2023F earnings per share (EPS) by 1%-1.2%/1.4%-1.8%.
Nevertheless, the research house expects demand for beer and stout to be relatively inelastic in nature.
“With the potential enforcement of liquor licence on restaurants and coffee shops, we expect part of the beer and stout sales to shift to other sales channels including modern on-trade (bars, modern restaurants, etc.) and off-trade sales channels (convenience stores, retailers, etc.) in the longer term,” projected CGS-CIMB Research.
All-in-all, the research house reiterated its “overweight” outlook on the brewery sector alongside its “add” calls on both Carlsberg and Heineken.
“In our view, current valuations of both brewers are attractive while both stocks are a proxy for a recovery in consumer activities from the lifting of lockdown measures,” added CGS-CIMB Research. – Dec 7, 2021
