Malaysia: Breweries still poised to post strong yearly growth - analysts

Breweries are still poised to post strong yearly growth in FY21, thanks to a gradual recovery in sales volume, despite the sudden closure of their operations announced on June 1, said CGS-CIMB.

In a note, its analyst Walter Aw said the sales improvement will be underpinned by three factors — firstly, brewers will have higher finished-goods inventories in anticipation of another lockdown, to prevent insufficient stock at off-trade sales locations which happened during the first Movement Control Order (MCO 1.0); secondly, more off-trade sales points such as e-commerce platforms are available to meet the needs of consumers; and thirdly, there are upcoming global sporting events such as Euro 2020, which are key drivers of beer sales.

“At this juncture, we make no changes to our FY21-23F EPS [earnings per share] estimates, pending further updates on this matter. We retain our 'neutral' call on the brewery sector. We have 'hold' recommendations for both Heineken Malaysia Bhd and Carlsberg Brewery (M) Bhd.

“Despite the sector’s weak near-term outlook amid Covid-19, we think valuations will be supported by: i) the defensive nature of the brewers’ business (inelastic beer demand), ii) the captive market in Malaysia (only two licensed breweries in Malaysia), and iii) the brewery sector’s 29.5% discount to Malaysia’s overall consumer sector’s current CY22F weighted average P/E [price-earnings ratio] of 35 times,” he said.

On June 1, Senior Minister (Security) Datuk Seri Ismail Sabri Yaakob said breweries will have to suspend operations in line with the MCO standard operating procedures from June 1 to 14, as their products are not deemed as essential goods.

Aw said the two-week halt in productions is expected to cause a 3.8% drop in revenue and 7.4% decline in net profit for the sector this year.

“Note that we had earlier inputted lower sales in FY21F for both companies, to reflect slower on-trade sales volumes in tandem with the announcement of more stringent Covid-19 lockdown measures since May 2021,” he said.

As at 11.45am on June 2, Carlsberg was down by 10 sen or 0.44% at RM22.40, giving it a market capitalisation of RM6.81 billion. Meanwhile, Heineken was up two sen or 0.09% at RM23.50, valuing the group at RM7.09 billion.

01 June, 2021