HLIB Research said Carlsberg and Heineken offer exposure to the tourism recovery angle.
PETALING JAYA: The only two listed brewers in Malaysia are not only trading at undemanding valuations, their profit margins are also expected to improve as costs ease and the ringgit strengthens.
In its latest note, Hong Leong Investment Bank (HLIB) Research reiterated its “buy” calls on Carlsberg Brewery Malaysia Bhd
and Heineken Malaysia Bhd.
Interestingly, both brewer stocks ended 2023 in the red, with their share prices falling by 15.7% and 4.2%, respectively.
Explaining its bullishness on both companies, HLIB Research said Carlsberg and Heineken offer exposure to the tourism recovery angle, which the research house believes “still has legs to go”.
“Although tourist arrivals in Malaysia and Singapore have displayed commendable recovery trajectories, they are still below pre-pandemic levels, indicating room for further advancement – we believe the brewers offer good exposure to this angle.
“We foresee the upward trend in tourist numbers continuing into 2024, driven predominantly by an escalating influx of Chinese tourists, ultimately boosting beer consumption,” it said.
HLIB Research further pointed out that the lower prices of tin and barley would contribute to a more favourable margin outlook for Carlsberg and Heineken, upon the renewal of fixed-price contracts.
To recap, brewers responded to elevated raw material costs, including barley, aluminium and logistic, by increasing their beer average selling prices in 2021 to 2022.
As the costs are easing, brewers will be able to capitalise on lower raw material prices, according to HLIB Research.
“Additionally, the impact of the weakened ringgit on costs is expected to subside in the financial year 2024, especially considering the end of the US Federal Reserve’s rate upcycle.
“Our economics team is optimistic about a recovery of the ringgit in 2024, projecting an average ringgit to US dollar exchange rate of 4.44 (2023: 4.54) to end the year at RM4.30 per dollar,” it added.
