HLIB Research sees strong 3Q beer sales recovery, upgrades Carlsberg, Heineken to ‘hold’

KUALA LUMPUR (Sept 28): With anticipations of a stronger sales volume recovery on the back of gradual relaxation of the movement control order (MCO) rules, Hong Leong Investment Bank Bhd has upgraded both Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd to “hold” from “sell” calls.

“By studying the recovery in beer sales in Thailand, we reckon that a similar pattern could happen in Malaysia. We also reckon that chances of an excise duty hike during Budget 2021 would be low,” said the research house’s analyst Gan Huan Wen in a research note today.

Gan highlighted that Thailand’s beer sales volume grew 27% year-on-year (y-o-y) in July due easing of lockdown restrictions in spite of a lack of tourists.

“Using Thailand as a benchmark, we expect beer sales volume in 3Q20 (the third quarter of 2020) to be stronger y-o-y as we understand a larger portion of beer consumption in Malaysia (50%) is consumed out of home (versus Thailand’s 27%), which translates into a stronger recovery as consumers are permitted to return to drinking outlets post the MCO,” said Gan.

Particularly, Gan expects Heineken to return to profitability in the third quarter ending Sept 30, 2020 (3QFY20), in contrast to its 2QFY20’s net loss of RM18 million. Gan noted that Heineken was already profitable in May and June after losses peaked in March at RM43 million.

Nonetheless, should the alcohol excise duty be increased, brewers can mitigate the earnings impact by “watering down” their beer and therefore keeping their selling prices unchanged, said Gan.

Despite the upgrade in calls for both breweries, Gan maintained Carlsberg and Heineken’s target prices (TPs) at RM19.70 and RM18.70 respectively, based on a discounted cash flow (DCF) valuation methodology, with a weighted average cost of capital (WACC) of 8.5% and TG of 2.5%.

At 9.39am, shares in Carlsberg were down four sen or 0.19% at RM20.60, valuing it at RM6.31 billion. Year to date, the counter has fallen some 30% from RM29.40.

Heineken, meanwhile, rose 14 sen or 0.67% to RM20.98, giving it a market capitalisation of RM6.3 billion. The stock has slipped some 23% year-to-date (YTD) from RM27.12.

Source: TheEdgeMarkets