Malaysia: Analysts upgrade brewery sector to “Overweight”

Hong Leong Investment Bank (HLIB) Research has upgraded the brewery sector to “Overweight” and said many of the consumer stocks have experienced a strong and almost full-blown recovery when the economy gradually reopened since mid-Aug 2021, The Edge Malaysia reported.

In a sector update on April 6, the research house however said the brewers were laggards, given the pandemic restrictions in place that were less favourable to the brewers.

It said with Malaysia’s recent transition into an endemic phase on April 1, the brewers will benefit from the removal of certain restrictions (i.e. resumption of operations for bars and pubs, normalising of operating hours, reopening of international borders, etc.) that are expected to boost alcohol consumption.

“We are also not overly concerned on the recent jump in raw material prices as we think the brewers would be able to pass this on to consumers, due to the relatively inelastic demand of beer.

“The brewers “premiumisation push” coupled with better economies-of-scale (arising from the absence of brewery closure), are expected to support the recovery in margins going forward.

“All in all, we are positive on the brewers, and we upgrade our rating on the brewery sector to Overweight,” it said.

Carlsberg Brewery Malaysia Bhd

HLIN tweaked its earnings forecasts for FY22-23f downwards by circa 3% due to housekeeping changes.

“However, our target price (TP) is raised to RM24.62 (from RM21.43), as we change our valuation method from discounted cash flow (DCF) to PE-based methodology.

“We value Carlsberg based on a PE multiple of 27.8x (at its 5-year mean) on its FY22f EPS of 88.6sen. Given the upside, we upgrade our recommendation on Carlsberg to Buy,” it said

Heineken Malaysia Bhd

HLIB kept its earnings projections for Heineken are kept unchanged, but TP was lifted to RM24.92 (from RM22.50), due to a switch in valuation methodology (from DCF to PE-based valuation).

“Our TP represents a PE multiple 25.4x, which is at its 5-year historical mean, based on a FY22f EPS of 98.1 sen. In view of the higher upside, we upgrade our call on Heineken to Buy,” it said.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .